Texas Bill Would Set Percentage Insurers Must Spend on Medical Care

February 12, 2009

Texas State Representatives Rafael Anchia, Dr. John Zerwas and Dr. Mark Shelton have filed HB 531 that determines the percentage of premium dollars that health insurance companies must spend on direct medical care, as opposed to non-medical costs like profits, marketing and administration.

“Without a requirement like this,” Anchia said. “Some insurance companies could charge very high premiums, but then end up spending an unreasonably low percentage of that money on actual medical care.”

He added, “I respect that health insurance companies need to make a reasonable profit, but as legislators, we need to find a way to make sure that insurers’ profit and expense ratios aren’t so high that they’re making coverage unaffordable. Too many Texans can’t afford health coverage as it is.”

The bill mandates that, for the general and small employer market, 75 cents of every dollar must go to medical services, limiting non-medical costs (including profits) to 25 cents per dollar. For the individual market, the medical services requirement (also known as “medical benefit ratio”) is 65 cents per dollar, and for the large group market the requirement would be 80 cents per dollar.

Fifteen states have set minimum medical benefit ratio standards, requiring insurers to either refund consumers or make adjustments to future premiums when they don’t spend enough on medical care to meet the standard. HB 531would also require such refunds.

Under a similar plan in New Jersey, insurers have returned $11.6 million to consumers since 1993.

“The top priority of health insurance is to provide reasonable benefits to the enrollee in their time of need” said Dr. Zerwas, adding, “This bill will bring a sense of security that patient needs will come before dividends are paid or unnecessary administrative costs are incurred.”

Source: Texas House of Representatives

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