The federal government has announced that it has not approved Texas’s request for exclusion from a new law that places limitations on allowable amount of overhead spending by health insurers.
The law from which Texas wanted to be excluded is one of the changes made in 2010 as a part of the Affordable Care Act for federal health care. Officials in Texas are claiming that this part of the Act is unconstitutional.
It is called the medical loss ratio requirement, and it states that health insurance companies must spend a minimum of 80 percent of their revenue on payments for policyholders’ health care or improvement to their health coverage plans. This means that they can spend no more than 20 percent of their revenue on executive salaries and overhead. The consequences for spending more than 20 percent on those costs is a requirement to provide customers with rebates beginning in 2012.
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However, according to officials from the U.S. Department of Health and Human Services (HHS), Texas was not able to prove that there would be destabilization of their insurance marketplace if it complied with this new regulation. Therefore, according to the HHS’s acting director of oversight, Gary Cohen, it is likely that health insurance companies in the state will be required to pay their policyholders rebates worth $476 million over the next three years.
Cohen explained that the HHS felt that Texas’s request to adjust the 80-20 rule was unwarranted, and that “This means that consumers in Texas will get the full benefit of the Affordable Care Act.”