Medical Loss Ratio (80/20 Rule)

The “80/20 rule” (medical loss ratio provision of the Affordable Care Act) requires that insurers spend a certain percentage of premium income (80 percent for individual and small employer business, 85 percent for large employer business) on claims and healthcare quality improvement. No more than 15 to 20 percent of premiums may be spent on administrative, marketing, and other costs.

If a health insurer does not meet this standard, they must rebate the difference to customers. It’s estimated that health insurers may issue more than $1 billion in rebates in 2012 as a result of the 80/20 rule.

No Premium Rebates Due for 2011

We are pleased to report we exceeded the 80/20 rule standard for 2011. In other words, PacificSource spent more than 80 to 85 percent of premiums on medical claims or improvements in healthcare quality. As a result, our customers will not receive premium rebates this year.

Over the next year, our Member Handbooks, available through InTouch, will include the provision’s required Medical Loss Ratio notice.

As a not-for-profit health insurer, PacificSource has always maintained very low administrative costs, and is committed to using the bulk of premium dollars toward our mission of helping people get the healthcare they need. On average, just 9.2 cents from every premium dollar goes toward our administrative costs.

We do not anticipate that rebates will be due for 2012; however, if they are, we will issue them by August 1, 2013, as required.

For more information about medical loss ratio, visit http://www.healthcare.gov/news/factsheets/2010/11/medical-loss-ratio.html.