Healthcare reform and a letter to my wife


When it comes to healthcare reform, depending on who you talk to, it's either the greatest thing since sliced bread or Darth Vader's evil cousin. Here, in the form of a letter my wife recently received, is some good about healthcare reform in my opinion:


This letter is to inform you that Humana Insurance Company will be rebating a portion of your health insurance premiums through your employer or group policy holder. This rebate is required by the Affordable Care Act - the health reform law.

The Affordable Care Act requires Humana Insurance Company to rebate part of the premiums it received if it does not spend at least 85 percent of the premiums Humana Insurance Company receives on health care services, such as doctors and hospital bills, and activities to improve health care quality, such as efforts to improve patient safety. No more than 15 percent of premiums may be spent on administrative costs such as salaries, sales, and advertising. This is referred to as the "Medical Loss Ratio" standard or the 85/15 rule. The 85/15 rule in the Affordable Care Act is intended to ensure that consumers get value for their health care dollars.

The Medical Loss Ratio rule is calculated on a state by state basis. In your state, Humana Insurance Company did not meet the 85/15 standard. In 2011, Humana Insurance Company spent only 83.5% of a total of $134,346,763 in premium dollars on health care and activities to improve health care quality. Since it missed the 85% target in your state by 1.5% of premium it received, Humana Insurance Company must rebate 1.5% of the total health insurance premiums paid by the employer and employees in your group health plan. We are required to send this rebate to your employer or group policyholder by August 1, 2012, or apply this rebate to the health insurance premium that is due on or after August 1, 2012. Employers or group policyholders must follow certain rules for distributing the rebate to you.

What is the 85/15 rule?

The 85/15 rule refers the ratio of the amount of premiums that an insurer collects to the amount it spends on claims. Under the PPACA, insurers are obligated to spend a minimum amount of the premium collected on medical claims or towards activities that improve health. In the case of the 85/15 rule, an insurer must spend 85% of the premium collected on medical claims on health improvement activities.

Ways in Which an Employer Can Distribute the Rebate

If a group health plan is a non-Federal governmental plan, the employer or group policyholder must distribute the rebate in one of two ways

Reducing premium for the upcoming year; or
Providing a cash rebate to employees or subscribers that were covered by the health insurance on which the rebate is based

If a group health plan is not a governmental plan or a church plan, it likely is subject to the Federal Employee Retirement Income Security Act of 1974 (ERISA). Under ERISA, the employer or the administrator of the group health plan may have fiduciary responsibilities regarding use of the Medical Loss Ratio rebates. Some or all of the rebate may be an asset of the plan, which must be used for the benefit of the employees covered by the policy.

Have questions? I’m here to help.