The ACA requires insurance companies have to spend at least _______% of your premium dollars on actual medical expenses, not overhead and profit. a. 60 b. 70 c. 80 d. 90
The correct answer and explanation is:
The correct answer is: c. 80
Explanation:
The Affordable Care Act (ACA), also known as Obamacare, introduced several consumer protection rules to improve the quality and fairness of health insurance. One key provision relates to how insurance companies must spend the premiums they collect from policyholders.
Under the ACA, insurance companies are required to spend a minimum percentage of the premium dollars they receive on actual medical care and health services for their customers, rather than on administrative costs, overhead, or profit. This rule is known as the Medical Loss Ratio (MLR) requirement.
Specifically, the ACA mandates that insurance companies spend at least 80% of premium revenue on medical care and activities that improve healthcare quality. For large group plans, this minimum is slightly higher at 85%. The remaining 20% (or 15% for large groups) can be spent on administrative costs, marketing, salaries, and profits.
If an insurer fails to meet this requirement, they must provide a rebate to their customers, effectively returning the portion of the premium that was not spent on medical care. This provision encourages insurers to operate efficiently and prioritize patient care over excessive administrative expenses or profit margins.
The MLR rule helps protect consumers by ensuring a significant portion of their premiums actually goes toward their healthcare needs rather than insurer overhead. It also promotes transparency and competition among insurance companies, encouraging them to offer better value.
Before the ACA, there were no such guarantees, and some insurers spent a large portion of premiums on non-medical expenses, limiting the actual healthcare coverage consumers received. The 80% rule thus represents a fundamental step toward increasing accountability and improving the overall healthcare system in the United States.