A friend and I were having a discussion today about the ACA. He mentioned to me that under the ACA that a maximum of 20% of premiums paid could go toward administrative costs and profit and that at minimum 80% of premiums had to go toward paying for actual health care. If an insurer only used 70% of premiums toward health care, they would have to issue a refund to those insured.
Presumably the intention of this clause is to limit the insurance companies profits and to lessen an insurance companies incentive to provide less healthcare.
However, I see as a potential unintended consequence of this provision of the law a lessening of an insurance companies incentive to prevent fraud/waste. Without this requirement, every dollar of fraud/waste prevented is an extra dollar of profit(not quite true because it cost money to prevent fraud/waste). Put this requirement in and this is often no longer the case. That dollar you recover/save...well you might not get to keep that....you might have to refund it back to your policy holders.....so why bother?
Presumably the intention of this clause is to limit the insurance companies profits and to lessen an insurance companies incentive to provide less healthcare.
However, I see as a potential unintended consequence of this provision of the law a lessening of an insurance companies incentive to prevent fraud/waste. Without this requirement, every dollar of fraud/waste prevented is an extra dollar of profit(not quite true because it cost money to prevent fraud/waste). Put this requirement in and this is often no longer the case. That dollar you recover/save...well you might not get to keep that....you might have to refund it back to your policy holders.....so why bother?
