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

This regulation, known as the "medical loss ratio" provision of the Affordable Care Act, will make the insurance marketplace more transparent and make it easier for consumers to purchase plans that provide better value for their money, according to HHS.

- Beginning in 2011, the law requires that insurance companies publicly report how they spend premium dollars, providing meaningful information to consumers.

- Also beginning in 2011, insurers are required to spend at least 80 percent (generally, 85 percent in the large group market and 80 percent in the small group or individual market) of the premium dollars they collect on medical care and quality improvement activities, rather than on administrative costs.

- Insurance companies that are not meeting the medical loss ratio standard will be required to provide rebates to their consumers.

- Insurers will be required to make the first round of rebates to consumers 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 interim final regulation is effective January 1, 2011.

For more information regarding the medical loss ratio, please click here. To view the interim final regulations, please click here. You may also read the press release by clicking here.

"Medical Loss Ratio Requirements under the Affordable Care Act" December 2010 <HR and Benefits Essentials Newsletter> (December 2010)