One of the most controversial provisions of Affordable Care Act was codified today as the Department of Health and Human Services (HHS) issued new rules regarding medical loss ratio (MLR).

The regulations require health insurers to spend 80% to 85% of premiums on direct care for patients and efforts to improve care quality, starting in 2011. HHS Secretary Kathleen Sebelius said the rules were crafted to restrict the money insurers allot for administrative costs, such as executive salaries, overhead and marketing. 

“Thanks to the Affordable Care Act, millions of Americans will get better value for their health insurance premium dollar,” Sebelius said. “These new rules are an important step to hold insurance companies accountable and increase value for consumers.”

The Affordable Care Act required the National Association of Insurance Commissioners (NAIC) to develop uniform definitions and methodologies for calculating insurance companies’ medical loss ratios. 

The Independent Insurance Agents & Brokers of America (IIABA) expressed disappointment that the rule includes agent and broker commissions when calculating an insurer’s MLR, citing concerns that the rule will “lead to severe market disruption, especially in the individual and small group markets.”

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Corrected November 22, 2010 at 12:51PM: yes