Consumers saved nearly $1.5 billion in 2011 as a result of rules in President Obama’s healthcare law that limit what insurance companies can spend on expenses unrelated to medical care, including profit, a new analysis shows.
Much of those savings -- an estimated $1.1 billion -- came in rebates to consumers required because insurers had exceeded the required limits.
The study by the New York-based Commonwealth Fund also suggests that the Affordable Care Act forced insurers to become more efficient by limiting their administrative expenses, a key goal of the 2010 law.
In some cases, insurers passed savings on to consumers in the form of lower premiums and higher spending on medical care, the researchers found. This was primarily true in the individual market, where consumers buy health insurance on their own.
The rules “appear to be producing important consumer benefits,” concluded the report’s authors, Michael McCue, a professor of health administration at Virginia Commonwealth University, and Mark Hall, a healthcare law professor at Wake Forest University.
Administrative costs in the individual market dropped in 39 states, with major improvements in Delaware, Ohio, Louisiana, South Carolina and New York.
And insurers in 37 states spent relatively more of their customers’ premiums on medical care, with big gains in New Mexico, Missouri, West Virginia, Texas and South Carolina.
Americans who get health insurance through work saw fewer benefits, as insurers often pocketed savings from lower administrative expenses, but some insurers were forced to pay rebates to consumers. Researchers attributed the reduced benefits for consumers in the so-called group market to the fact that many insurers already met the law’s requirements.
Stepping up regulation of health insurance companies has been a top priority for consumer advocates, who have complained for years that insurers routinely increase premiums to pad profits and executive salaries rather than pay for medical care.
The healthcare law attempts to address this by requiring insurers to spend at least 80 cents of every dollar they collect in premiums on medical care, rather than on administrative expenses -- a standard known as the medical loss ratio, or MLR. Insurers selling to employers must meet an even tougher standard, spending at least 85 cents of every dollar on medical care.
Supporters of this strategy hope it can dampen premium increases, which have been surging for years.
McCue said the approach appeared to have helped slow premium growth in the individual market, where he estimated that rates increased about 6% on average between 2010 and 2011, when the new standards were put in place.
But premium growth, although slower than in years past, continues to outpace inflation and wage growth, a major challenge to the president’s law, which held out the promise of lowering healthcare costs.
The average cost of an employer-provided family health plan jumped 4% to $15,745 between 2011 and 2012, a cost shared by employers and employees, according to an annual survey released in September by the Kaiser Family Foundation and the Health Research & Educational Trust.
There is evidence that premium increases are driven largely by rising medical costs, not profit-taking. And insurance companies continue to vigorously oppose the standards.
“The MLR completely ignores the real driver of premium increases,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, the industry’s Washington lobbying arm.
Sara Collins, Commonwealth Fund vice president for affordable health insurance, said the findings indicated that insurers must continue to be scrutinized. “It will be crucial to monitor insurers’ responses to this regulation over time to ensure that all purchasers and consumers benefit from the savings the law is designed to encourage,” she said.