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Medical Loss Ratio Regulations Rollout Event

November 22, 2010

Remarks as prepared for delivery

Hello everyone and thank you for joining us this morning.

I’m pleased to be joined today by several of my HHS colleagues to announce the release of an important new consumer-protection tool.

And I am grateful to share the stage with three people who have worked very hard to make this new tool possible.

Jane Cline, the Insurance Commissioner for the State of West Virginia and the President of the National Association of Insurance Commissioners;

Lynn Quincy with Consumers Union; and

Professor Tim Jost of the Washington and Lee University School of Law, and a leading voice for patients’ rights and protections.

This is an important day. On March 23rd, President Obama signed into law the Affordable Care Act. An historic piece of legislation that put patients back in charge of their care and improves the quality and affordability of care for all Americans.

The Act provides patients with new rights and, yes, new responsibilities. And it gets rid of the worst insurance practices.

The Act invests in states to help them do the important work of reviewing premium increases and assisting consumers as they navigate the health care system.

And we have created a state-of-the art website – – that empowers consumer to shop for the health plan that best suits their needs.

Over the last 8 months we have been working hard with partners in the states all across the country to bring greater transparency and accountability to our health insurance system.

And today we are announcing the release of Medical Loss Ratio regulations that will guarantee that consumers get the most out of their premium dollar.

For too long consumers have watched their premiums rise more rapidly than their wages and more rapidly than the cost of any other goods and services sold in this country.

Yet, consumers and the employers who help foot the bill for coverage, have not always received the kind of quality health care they should expect at such a price.

These cost increases are partly due to rising medical costs and utilization of services, but they are also due to rising insurance company administrative costs, marketing costs and, in some cases, large CEO salaries and bonuses.

These overhead costs contribute little or nothing to the care of patients and the health of consumers. While some level of administrative cost is certainly necessary, we believe they have gotten out of hand.

That’s going to change starting in 2011. When these medical loss ratio regulations go into effect next year, insurers must show that they are spending at least 80% of your premium dollars on direct medical services and quality improvement – doctor’s visits, trips to the hospital, outpatient surgery, prevention or other activities designed to improve the quality of care.

In the case of insurance plans for larger employers, these regulations require spending at least 85% of your premiums on providing care and quality improvement.

If an insurer spends too much of your premiums on administrative costs and doesn’t meet the 80 or 85 percent standard in a given year, they will be required to send their plan members a rebate based on their excess spending on overhead. Rebates will be owed for 2011 and those first rebates will begin to arrive in 2012.

Now, I recognize that all may sound a little complex. So let me break it down for you.

Today the average insurance plan for a family of four costs $13,250 per year. And in today’s market, your insurer can spend as little or as much of that money on care and quality as it wants.

Under these rules, however, a small employer group insurer or insurer that provides plans to individuals will have to spend 80% of that on care and quality, or just over $10,600.

If you are insured by a large group plan, the insurer must spend at least $11,260, or 85%, on care and quality.

That’s a much better return on your investment.

In today’s market, some insurers report spending as little as 60% of premium dollars on care. Under these rules, unless those plans change their spending habits, they would have to refund nearly $3500 to each family they insure.

What you’re going to see is more and more insurers working very hard to control their overhead and maximize what they spend on care. That means better benefits for you and your family.

That’s what I call real results for real Americans. Sadly we don’t spend enough time here in Washington focused on these families. These rules remind us what health reform is all about.

We could not have created these regulations without the hard work of our nation’s state insurance commissioners. As a former insurance commissioner myself I am immensely proud of the work that the National Association of Insurance Commissioners did in helping to write these rules.

They spent months listening to all views, studying the evidence, and coming up with common sense recommendations that help turn the law into action.

And the regulations we released today follow all of the recommendations and intent of the final guidelines created by the NAIC.

I was very impressed with the way they balanced the needs of consumers with those of insurers so that we can preserve what is good about our current system and begin to change what is not working well.