Within the Affordable Care Act, there is a provision known as the 80-20 rule. This is a provision that applies to insurance companies. The 80-20 rule holds insurance companies responsible for ensuring that the insured are getting the most value of their premium dollars. The 80-20 rule calls for full disclosure of the expenditures of each insurance company and forces them to spend the money toward health care costs of the insured at a rate of 80/20. As an example: for every dollar you spend on your health insurance premiums 80¢ will go directly toward health care costs while the remaining 20¢ can be used toward overhead, administrative and profits of the insurance company.
Insurance policies belonging to large groups – an employer with 50 or more full time employer – must spend 85% (or 85¢ from every dollar) on care and quality improvement. If your insurance company does not meet the 80 or 85% rate – based on the type of insurance you have – you will receive a rebate on your premium.
The end result is that more of your premium dollars will have to be spent on health care costs and thus improve the quality of care. If the money is not spent on health care costs it must then be rebated back to the insured. This is a win / win situation for the American people. In addition, the accountability will be transparent, allowing the general public the ability to see how the insurance company is spending your premium dollars. For the first time, the insured will have proof the fair value of the amount of money they are spending on health insurance and how that money is spent on health care, overhead costs, salaries, advertising and more.
If a rebate of premium is in order, they must take place before August 1st each calendar year. The rebate method varies depending on how you are insured:
- Individual policies: refunds can be made available through a lump sum reimbursement or a discount on future premium payments.
- Employer sponsored health plans: The employer – or health care administrator will receive the rebate for the group plans and a part of that rebate will be provided to the employees or it can be used for their welfare through a low amount for the premiums.
Transparency in the Insurance Industry
The 80-20 rule requires health insurance companies to be transparent with their customers by informing them of their success or failure in meeting the requirements of the 80-20 rule. If a company does not meet the requirements, they will have to provide details regarding the expenditures and the percentage of the premiums which will be rebated.
It now becomes more important than ever for an insurance company to provide satisfactory and valuable services to their insured by improving the quality of the insurance they provide. In the end, lower premiums and fairer pricing of insurance can be expected.