Health insurers must spend more on medical care, new rules say

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U.S. health insurers collect billions of dollars in premiums every year, devoting much of the income to administrative expenses such as advertising and executive salaries. Soon, more of that money must go to healthcare.

New spending rules adopted Monday by the U.S. Department of Health and Human Services will require insurers in the individual and small-business markets to spend at least 80 cents of every premium dollar on medical care. The figure is 85 cents for insurers offering coverage to large businesses.

Obama administration officials say the rules, implementing part of the national healthcare reform law, are meant to rein in spending by the insurance industry. Officials note that some insurance plans use more than half of their premium income on administrative expenses.

The new rules take effect Jan. 1. Insurers that do not comply with the spending requirements -- known as medical-loss ratios -- will have to issue rebates to individuals or businesses, starting in 2012.

“These new rules are an important step to hold insurance companies accountable and increase value for consumers,” Health and Human Services Secretary Kathleen Sebelius said in a statement.

Insurance industry leaders have said the new spending obligations could drive insurers out of markets where profit margins are already thin. Consumer advocates say the rules will force insurers to pay closer attention to their members’ needs.

To read more about the insurance spending rules, go to http://www.healthcare.gov/news/factsheets/medical_loss_ratio.html. Other information is available at http://www.hhs.gov/ociio/regulations/index.html.

-- Duke Helfand