Health Law Consulting Blog

Friday, November 1, 2013

The Impact of the Healthcare Reform Law on Health Insurance Companies & Individuals

Before PPACA passed, health insurance companies had a broad range of options in determining the types of policies they issue to consumers and the costs of that health care coverage. In particular, companies could limit or deny insurance coverage to consumers that had pre-existing conditions and raise health care premiums, without justification, subject to certain state law limitations.

After PPACA, insurance companies must work within clearly defined standards that greatly impact who will receive insurance coverage, the types of coverage they will receive, and the costs of such coverage. For instance, insurance companies will no longer be able to raise insurance premiums solely for profit based reasons or disproportionately benefit from such higher premiums. If premiums are raised, insurance companies will now have to justify any rate increase greater than 10% to the states in which they operate in and disclose the information to their customers.

Read on to learn more about how the PPACA is impacting insurance companies and individuals.

PPACA Impact on Insurance Companies

I previously discussed the impact of the new 80/20 and 85/15 medical loss ratio. The medical loss ratio requires insurance companies to spend a larger percentage of premiums on customers’ health care and quality improvement activities instead of administrative, overhead, and marketing costs.  For example, the medical loss ratio requires insurance companies to spend at least 80 percent of premiums on their customer’s health care expenses, or provide rebates to them instead of putting the money towards administrative expenses. Insurance companies selling to large groups (usually more than 50 employees) must spend at least 85 percent of premiums on care and quality improvement.  According to an analysis done by the Kaiser Family Foundation, insurance companies were expected to refund 15.8 million health insurance policyholders $1.3 billion in rebates by August 2012. The actual figures from HHS show that health insurance companies issued approximately $1.1 billion on premium credits of rebates with an average rebate totaling $151per consumer or $12.50 per month.

Now, insurance companies are dropping covered customers due to financial losses resulting from the medical loss ratio in addition to not meeting the qualified health coverage standards implemented under the PPACA. Additionally, insurance premiums have become more costly since states have implemented online insurance exchanges. These exchanges have allowed more insurance companies into markets where they previously lacked the means to service consumers.  

Overall, the PPACA has shaken the financial competition of the insurance industry. I will provide more up-to-date statistics regarding the profits and losses the insurance sector incurs as more consumers obtain health insurance coverage throughout the next couple of years.

PPACA Impact on Individuals

Under the PPACA, all U.S. citizens and legal residents are required to enroll in a qualified health plan by March 1, 2014, or be subject to a tax penalty for not having health insurance coverage.  The open enrollment period runs from October 1, 2013 through March 31, 2014. Under the latest policy change, the Obama administration granted a six-week extension to people who sign up by the end of the open enrollment period to avoid latecomers facing a penalty due to a common practice of the insurance industry that clashes with the enrollment period. Because health insurance coverage generally starts on the first day of a given month and it takes up to 15 days to process applications, individuals would have to sign up by the middle of February to guarantee coverage on March 1, 2014 in order to avoid fines for being uninsured. However, since the enrollment period runs through March 31, 2014 someone signing up March 16, 2014, although well within the time period, would not be covered until April 1, 2014. This puts individuals at risk of being penalized for being uninsured part of the year and the extension fixes this obvious oversight by the Obama administration.

Tax Penalty Guide

Tax Year

Tax Penalty


The higher of $95 per person (up to 3 people, or $285) OR 1.0% of taxable income.


The higher of $325 per person (up to 3 people, or $975) OR 2.0% of taxable income.


The higher of $695 per person (up to 3 people, or $2,085) OR 2.5% of taxable income.

 On October 1st, the federal and state insurance exchanges were open to the general public for individuals to review health insurance plans and obtain coverage at affordable rates. However, due to technical problems occurring throughout the month of October within the online health insurance exchanges, thousands of citizens were unable to access, view and/or obtain health insurance policy coverage. The six-week extension is not a remedy for the technical problems consumers have encountered in trying to obtain coverage online at or the other issues with policy cancellations and potentially higher premiums.

Many consumers have already received policy cancellation notices and seen a rise in their health insurance premiums. The rise in health insurance costs is mostly impacting middle-class consumers. In particular, some states are incurring a more significant increase in costs than others. For instance, in California, middle-class consumer’s insurance rates are rising, in large part, due to the offset in covering sicker and poorer people who are now obtaining insurance. According to a recent report released by Citizen Action of Wisconsin, state residents will pay on average 79 to 99 percent more for health insurance than their counterparts in Minnesota under the new PPACA.

Nevertheless, from a statistical standpoint, countless Americans will still benefit from the healthcare expansion.

Connect with me for more information on the impact the health care law is having in your community.


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Health Reform’s Medical Loss Ratio Rebates – A Good Value for Consumers?

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