Sunday, November 25, 2012

PPACA - The Medical Loss Ratio

Good afternoon.  I am going to take a break from discussing Human Resources Interviews to talk a little bit more about an interesting aspect of the Patient Protection Affordability and Care Act (PPACA), also known in some circles as Obamacare or the ACA.  I was looking over the government’s healthcare website and picking up some information.  The aspect I want to discuss is the Medical Loss Ratio. 

This is the Medical Loss Ratio calculation:  Divide the amount spent on mediacl care divided by the amount spent on premiums.  This ratio calculation, in effect since 11/22/2010, states that insurance companies are required to use 80% to 85% of all premium dollars directly on medical care.  This is intended to provide consumers with more value for their medical dollar, as premium dollars will no longer be allowed to be allocated to administrative costs, overhead, marketing, or executive salaries.     In the event that an insurance company spends more than this premium percentage amount on non-medical costs, that money will be rebated back to the customers after the end of August each year.  As of the end of 2011, average rebate per person that could be expected was $164.  However, most insurers reduced the rate of premium growth rather than be forced with giving rebates after the fact.

Starting last year, insurance companies had to begin reporting total premiums, total reimbursement for medical service, spending on quality improvement programs, and administrative costs to the Health and Human Services (HHS).  These reports are then publicly posted by HHS.  At the moment, I am researching where you can find that on their site.  In the meantime, you can view the link at the bottom of the page for the National Conference of State Legislatures (NCSL).  The insurers will be able to deduct the taxes that apply to health insurance coverage from the insurers revenue when calculating the Medical Loss Ratio.  There are accommodations, exceptions, and waivers that may apply to your individual organization, be sure to check with a lawyer and/or tax accountant for an expert opinion.

Finally, keep in mind that there is a financial penalty that may be imposed for insurers failing to meet the Medical Loss Ratio percentage.  There will also be penalties that may be assessed for failure to supply accurate or timely information about plan coverage to the HHS.  The penalty assessed for each instance of non-compliance will be $100 per day for each person in the plan.

And remember all of you Human Resources professionals:  Be Human... Be a Resource...  Be a Resource for Humans.

Relevant Links:

Please note, this information is based on my understanding and is only to be used for informational and educational purposes.  Do not take what I am writing as advice.  Seek your own legal counsel and/or see a tax accountant before making business or personal decisions.

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