On Aug. 1 health insurance plans that didn’t meet new medical loss ratio (MLR) rules had to refund about  $1.1 billion to individuals and/or employers and AHIP—the insurance industry lobbying group—isn’t too happy. It issued a statement saying that “soaring medical costs – not health plans’ administrative costs – are driving health care cost growth.”  

Under the MLR requirement of the Patient Protection and Affordable Care Act (PPACA), if an individual or small group plan spends less than 80 percent of premiums on medical care and quality, or if a large group plan spends less than 85 percent, it must rebate the portion of premium dollars that exceed the limit.  

“The MLR completely ignores the real driver of premium increases,” America’s Health Insurance Plans (AHIP) said in a release. Ninety-six percent of the increase in premiums from 1989 to 2010 was due to increased spending on health care, AHIP said, citing federal National Health Expenditure data.  

In addition, “the MLR is not simply a cap on health plans’ profits, salaries, and marketing costs,” AHIP said. The MLR caps any expense that does not go directly to pay for medical care or is not an activity approved by the federal government as improving health care quality, it said. “As a result, this regulation places an arbitrary cap on what health plans can spend on a variety of programs and services that improve the quality and safety of patient care, help patients navigate a complicated delivery system, and help control soaring medical costs,” AHIP said.  

The Obama administration argues that the MLR provision has induced insurers to lower premium increases and operate more efficiently. Based on 2011 health insurance expenditures, the Department of Health and Human Services estimated June 21 that the rebates will benefit 12.8 million policyholders and average $15 per household.