Medical Loss Ratio
Senator Franken championed a provision included in the final health reform legislation to hold insurance companies accountable and rein in profits. The provision kicked in right away and ensures that a higher percentage of every premium dollar is spent on actual health care, not wasteful administrative costs, marketing campaigns, CEO salaries, or profits. This was inspired by Minnesota's non-profit health system and will help control skyrocketing health care costs.
Currently, Minnesota’s non-profit plans lead the nation in keeping administrative costs low, spending an average of 91 cents of every premium dollar on actual health services. However, West Virginia's insurance commissioner reported that in 2007, insurers in the small group market spent only 75 cents of every premium dollar on medical care, and insurers in the individual market spent only 65 cents of every premium dollar on actual medical care. These wide differences indicated the need for a uniform policy.
The language in the health reform law set an 85 percent standard on large group policies and 80 percent on small group and individual policiess nationwide, allowing only the remaining portion to be spent on administrative costs, marketing campaigns, and profits. This was modeled off of Senator Franken's original Fairness in Health Insurance Act of 2009 S. 1730.
