It’s time for the Biden Administration to rescind the 80/20 Rule or Medical Loss Ratio. It is actually driving healthcare costs up, not keeping them in check.
On the heels of the Biden Administration issuing its interim final rule related to the No Suprises Act, I am urging the federal government to take further action to drive down healthcare costs. He hopes the Administration will consider rescinding the 80/20 Rule, also known as the Medical Loss Ratio.
The company I founded, TALON (https://talonhealthtech.com/transparency-in-coverage/) already has clients in 49 states who have turned to the company to achieve compliance with both the No Surprises Act and Transparency in Coverage Rule. TALON’s MyMedicalShopper app and related software products were viewed as gold standards by the government as the Rule and Act were fashioned.
But the Biden Administration can take another bold step toward free markets and cutting waste. Because it is clear the 80/20 Rule actually incentivizes insurers to waste subscriber premiums. The Administration should formulate a plan to get rid of it, as soon as possible.
In simple terms, the 80/20 Rule means that insurers must spend 80 percent of their revenue from premiums to pay for the healthcare of their subscribers. The other 20 percent is theirs to keep. Of the 80 percent, what hasn’t been spent on medical bills must be returned to subscribers.
Americans have received rebate checks from their health insurers when the Medical Loss Ratio doesn’t “measure up” to the 80/20 Rule. In 2020, $2.46 billion was returned. But that’s actually not good news.
Rebate checks look good, but when Minnesota’s former Senator Al Franken championed them as part of the Affordable Care Act, he didn’t think about how the 80/20 rule would affect the psychology of health insurance companies. Because if those companies are limited to making 20 percent of what they spend on health care for their subscribers, guess what they’re going to be motivated to do: Spend more. Then their 20 percent is a higher number.
I would bet anything that the $2.46 billion returned to consumers in 2020 could have been an order of magnitude greater had insurers diligently negotiated for lower prices on behalf of consumers. But we have inadvertently created an incentive for them to spend more, not less, on medical bills.
The truly good news about the Biden Administration issuing its interim final rule related to the No Surprises Act and the prior issuing by the Trump Administration of the Transparency in Coverage Rule should be accompanied by the President rescinding the 80/20 Rule by Executive Order.
We have powerful new bipartisan tools and incentives at hand that promise to revolutionize health care economics. The Biden Administration would only further those goals by surgically removing the cancerous 80/20 Rule.
