This summer, 12.8 million Americans received over $1.1 billion in rebates from their insurers. The 80/20 rule

Congress seems poised to throw out one of the most popular and effective provisions of the Affordable Care Act. But this move is not motivated just by political pique, it’s intended to protect the income of a special interest group. And some Democratic House members are helping Republicans do it.

This summer, 12.8 million Americans received more than $1.1 billion in rebates from their insurers. Small businesses received $321 million — money they can use to reduce their employees’ health insurance costs and expand their businesses. For many Americans, this is the most concrete evidence so far that health care reform is working for them.


These rebates were paid out under the act’s medical loss ratio — or 80/20 — rule, which requires insurers in the individual and small group market to spend 80 percent of their premiums on actual enrollee health care claims and programs to improve health care quality. The large group market must spend 85 percent on this. Insurers who miss the target had to pay a rebate.

But the rebates are not the most important benefit of the 80/20 rule. Strong evidence shows the rule is actually driving down premium increases for people and businesses. Health care costs have grown at record low rates since health reform was adopted. The 80/20 rule discourages insurers from raising premiums faster than the growth in health care costs — driving down the cost of insurance to consumers.

Yet Congress looks likely to eviscerate this rule to help a special interest group. One administrative cost that insurers must cover out of their 20 percent is marketing their products. This is usually done by insurance brokers and agents. Traditionally, agents and brokers have been paid through commissions based on a percentage of premiums, sometimes as high as 10 percent to 15 percent. As premiums have gone through the roof in recent years, commissions have grown apace.

The 80/20 rule has forced insurers to tighten their belts, and some have cut commissions. Agents and brokers have gone to Congress, asking for help in protecting their income. The bill, H.R. 1206, which is being marked up this week by the House Energy and Commerce Committee, would allow insurers to subtract commissions from premiums before calculating rebates.

This change would have reduced the rebates by 60 percent, according to a study by the National Association of Insurance Commissioners, using 2010 insurer reports. It is likely that for 2012 and subsequent years, it would cut rebates almost entirely.

More important, however, this bill would take the pressure off insurers to reduce premium increases, since it would effectively allow them to keep 20 percent of premiums, plus their marketing costs. All the beneficial effects of the 80/20 rule would be lost.

In addition, there is no guarantee that this law would even make agents and brokers any better off. Agents and brokers do provide a valuable service to consumers, and insurers should pay them fairly. But this bill does not require insurers to pay any more in commissions — it simply allows insurers to pay commissions and still keep 20 percent of premiums on top of the commissions for administrative costs and profits.

If Congress really wants to help agents and brokers, it should require insurers to pay minimum commissions out of their share of the premium. All this bill does is raise health insurance premiums — and insurer profits.

Timothy Stoltzfus Jost is a professor at the Washington and Lee University School of Law. He blogs on POLITICO’s Arena and at Health Affairs.

CORRECTION: A previous version of this opinion misstated the amount of rebates small businesses received this summer. Small businesses received $321 million

CORRECTION: Corrected by: Vivyan Tran @ 09/19/2012 03:51 PM CORRECTION: A previous version of this opinion misstated the amount of rebates small businesses received this summer. Small businesses received $321 million.

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