The 80/20 rule pays… for now

Lost in the discussions over the Supreme Court ruling on the Affordable Care Act (Obama Care) is the announcement of approximately $1.1 Billion in rebates being sent out to roughly 12.8 Million insurance policy holders around the country.  To break it down further, Florida (for example) will see $124 Million in rebates for 1.3 Million policy holders.  Why?  Because of the 80/20 rule.

The 80/20 rule (officially known as the Medical Loss Ratio) basically states that insurance companies have to spend at least 80% of the premium costs on the patients, with no more than 20% being paid on overhead.  While most of the insurance providers already meet this standard, a few do not, which is resulting in the refunds to their policy holders.  And while $1.1 Billion sound like a large number, it boils down to roughly $85 per policy holder.  Still a decent amount, but it’s wrong to assume that insurance plan prices will stay where they are now.

Analysts are already forecasting the costs for medical insurance coverage to continue to increase, even under the Affordable Care Act and it’s tax mandates for those who do not carry insurance coverage.  With more people potentially seeking insurance coverage, the insurance providers will need to increase their overhead to cover the new customer load.  Ideally, this would be a one-for-one trade, meaning that the 80/20 ratio will stay in check.  But the increased patient load might tax the limited resources of the industry, making the actual treatment costs to go up.  And since the law says that the insurance companies can spend up to 20% on overhead, they might work to maximize that 20% to keep their investors happy.

In the meantime, 1.3 Million customers of some Florida health companies will see a check coming their way at some point this Summer.  So if you have a plan from an Orlando health insurance company, a Miami health insurance company, or any other company in the Sunshine State, keep an eye on your mailbox for the next few months.  If you do receive a refund, I’d advise to save it rather than spend it, because you might have to spend it on your insurance coverage next year if rates go up again.