Healthcare law causing rates to drop in Texas

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By Consumers Union on Tuesday, April 3rd, 2012

Our routine polling tells us that health insurance costs are among the biggest concerns for Americans and when it comes to healthcare reform, lower rates are at the top of the list of priorities for families.  New rules created by the Affordable Care Act, a.k.a. “Obamacare”, took dead aim at lowering rates and new evidence from at least one state’s insurance department shows that the rules are working to rein in skyrocketing premiums.

According to data released yesterday from the Texas Department of Insurance (TDI), several health insurance providers, including that state’s largest insurer, Blue Cross Blue Shield of Texas, are dropping health insurance rates ahead of a new rule that will soon force low value carriers to provide rebates to policyholders. For Blue Cross Blue Shield customers in Texas, the rebate will amount to almost $200 per person.

“Not only are we seeing rate increases much smaller than in previous years, but many carriers are actually dropping rates for individual policyholders and small businesses,” said Blake Hutson of Consumers Union, the policy and advocacy division of Consumer Reports. “This new rule is a key component of the health reform law designed to help rein in ever-increasing premiums. We can see it starting to work right here in Texas.”

The new “medical loss ratio” rule caps the amount insurers can spend on administrative costs such as profits, broker commissions, CEO salaries, and marketing at 20 percent of premiums. If insurers spend more than that, they must send out rebate checks or reduce premiums.  The purpose of the rule is to improve the value of health plans by making sure insurers spend the bulk of premium dollars on actual medical care.  And starting last fall, rate hikes of 10 percent or more are now subject to close scrutiny to determine if they are reasonable.

“Lower premiums are a welcome sight for small businesses and Texans who buy coverage on their own outside of a major employer,” said Hutson. “Double-digit premium increases have been the standard in Texas, but so far in 2012 they are almost non-existent thanks to the new law.”

According to financial statements from Healthcare Service Corp., the company that operates Blue Cross Blue Shield of Texas, the insurer is due to rebate $79.5 million to 411,000 of its Texas customers to comply with the new law. In 2010, Blue Cross Blue Shield of Texas spent more than 30 percent of premiums on administrative costs for individual policyholders.

TDI’s request to delay the new cap on administrative costs was denied earlier this year. All insurers must announce by June 1 how much of their premiums were actually spent on medical care and rebates must be issued by August 1.

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