New regulations issued today by the Department of Health and Human Services (HHS) require health insurers to spend 80 to 85 percent of consumers’ premiums on direct care for patients and efforts to improve care quality.

This regulation, known as the “medical loss ratio” provision of the Patient Protection and Affordable Care Act (PPACA), will make the insurance marketplace more transparent and make it easier for consumers to purchase plans that provide better value for their money, HHS stated.

“Thanks to the [PPACA], millions of Americans will get better value for their health insurance premium dollar,” said HHS Secretary Kathleen Sebelius “These new rules are an important step to hold insurance companies accountable and increase value for consumers.”

Today, many insurance companies spend a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead and marketing.

The PPACA's medical loss ratio regulation requires insurance companies to spend 80 to 85 percent of premium dollars on medical care and healthcare quality improvement, rather than on administrative costs, starting in 2011. If they don’t, insurance companies will be required to provide a rebate to their customers starting in 2012.

The medical loss ratio regulation outlines disclosure and reporting requirements, how insurance companies will calculate their medical loss ratio and provide rebates, and how adjustments could be made to the medical loss ratio standard to guard against market destabilization.


The PPACA required the National Association of Insurance Commissioners (NAIC) to develop uniform definitions and methodologies for calculating insurance companies’ medical loss ratios. The regulation certifies and adopts the recommendations submitted to the Secretary of HHS on Oct. 27 by the NAIC.

The regulation and other technical information are available here.