Health reform means more bang for your buck — and maybe even a rebate check

July 30, 2012 | Tatsuko Go Hollo

Thanks to the Affordable Care Act, more than 7,600 Washington households are receiving rebate checks from their health insurance company.

According to the law, health insurers are now required to report how funds from consumer premiums are spent – specifically, how much goes toward health care costs versus administration. This rule, known as the 80/20 rule, limits the portion of premiums spent on administration to 20%. 80% of each premium dollar must pay directly for health care costs – and insurers that exceed the limit must refund any amount over the 20% ceiling.

Nationally, more than 12.5 million consumers will receive rebates totaling $1.1 billion. This will provide workers and families with a much-needed economic boost – money to spend on groceries, school supplies and car repairs. Small businesses will benefit too, with nearly a third of total U.S. rebates going to small employers.

The benefits of the 80/20 rule extend beyond the rebates. Because premium increases greater than 10% are subject to a new review process, consumers can expect to see a flattening of their premium costs. Business owners who have experienced double-digit percentage increases in premium costs over years past are now seeing only nominal increases – or even decreases – as they renew employee plans.

These policy changes are necessary to ensure individuals and families are able to access to care, particularly as ever-growing health costs have put coverage out of reach for middle class families and small businesses. As health reform implementation moves forward, Washingtonians can expect to see more affordability and increased access to the care they need and deserve.

In Washington state, rebates will total $594,031, an average of $185 for 7,681 households. Insurers must pay rebates by August 1, 2012.

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Posted in Health Care

Comments

  1. Winslow P. Kelpfroth says:

    80/20 rule makes sense, but there’s one thing I’ve never been able to understand. The admin costs of the Medicare system to which the private companies are compared never seem to include the costs of collecting the tax revenue. This makes Medicare seem a lot more efficient than it actually is.

    • Alex Stone says:

      Winslow,
      The cost of overhead to Medicare is generally listed at 2%, but a more accurate number may be around 5% – which would include the cost of billing and premium collection. Private health insurance companies vary with their admin costs by size, but some have admin costs in the range of to 20%-30%. This difference cannot be explained by collecting tax revenue.

      This study shows the difference between the Canadian and American health care systems in terms of administrative costs. A single-payer system is more efficient, and has much lower overhead.

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