New Rule: Health Insurance Companies Must Profit Less

Filed in Uncategorized by on November 23, 2010 0 Comments

New rules from the government mandate that private health insurance companies spend more on health care and reduce their profits. Kathleen Sebelius, Secretary of health and Human Services announced the new rules on Monday. The rule, called the medical loss ratio provision of the Affordable Care Act, will enable the federal government to direct the use of premiums of the companies. The vast expansion of government power comes from the new health care law.

According to Sebelius, “insurers in the individual and small-group markets must spend at least 80 percent of their premium revenues on medical care and activities to improve the quality of care”. Said to impact over 75 million consumers, this law marks the widest use of federal power in a long time. Companies who do not comply with the law will be required to pay a rebate to the consumer. It’s thought that rebates may result in payments up to 1.4 billion to over 9 million consumers, making this a powder keg to criticize.

The Department of Health and Human Services claims the mandate will make it easier for consumers to afford health care plans. Continuing to paint big health insurance companies as villainous profit mongers, the mandate may result in companies withdrawing from certain state markets to avoid having to close business. “Today, many insurance companies spend a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead, and marketing,” from the Health and Human Services press release. Those profits and administrative costs help to run a company efficiently and cost effectively. The government, not producing profits, does not seem to understand this. Instead, private industry is penalized for being in business and making money for their employees and shareholders. In anticipation of the new health care law, it appears that government wouldn’t mind if many of the health insurance companies went out of business, thus pushing individuals to purchase plans from the government. Perhaps that’s their plan all along?

New Rule: Big government can tell private companies how to run their business, how much profit they can make and require rebates.


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