By Dana Kennedy, Health Policy Intern from the Colorado Consumer Health Initiative

August is a big month for health care!  As of August 1st insurers were required to cover certain women’s preventive services without cost-sharing (like co-pays) in new plans, and start covering them when current plans are changed.

But August 1st was also an important day for consumers in another way – insurers were required to mail over $1.1 billion in rebates to consumers for failing to meet what is known as the 80/20 Rule.  Let us explain why.

Under Obamacare, health insurance companies are responsible for reporting the amount of consumer premiums spent on health care and administrative costs.  The term used to describe the percentage of a premium dollar the insurance company “loses” in paying for medical services is known as the medical loss ratio, or MLR.  MLRs have varied widely in the past but now must meet certain criteria, as mandated under the Affordable Care Act.

The 80/20 Rule will increase the efficiency of health insurance companies and ensure premium dollars go to providing consumers with necessary medical care.  Insurers in the large group market must now spend 85% of premiums on health care; small group and individual insurers must spend 80% because of the greater costs of administering insurance to this sector of the market.

For the first time, because of the ACA’s 80/20 Rule consumers can now see how much of what they pay into health insurance is spent in the provision of health care services.  Last month, insurance companies submitted 2011 spending reports to the U.S. Department of Health and Human Services.  Those who did not meet MLR requirements must reimburse consumers BY AUGUST 1ST (mailed by) in one of the following ways:

• A mailed rebate check
• Reimbursement to the credit card or bank account used to pay insurance premiums
• Decrease in future payments
• Employee-provided rebates

Millions of dollars are being putting back in the pockets of consumers.  Across the country, more than a billion dollars will be sent out to make up for the extraneous dollars insurance companies spent on non-health care costs, including executive salaries and profits.

Good news for Americans! On average American families will save $151.  Around 67 million Americans are insured by insurance companies meeting the 80/20 rule. In Colorado alone more than 200,000 families will receive rebates totaling almost 27.5 million dollars.  In California nearly 1.78 million families will get rebates.

While this does not mean that insurance premiums will remain static or fall, as the cost of providing health care continues to rise, it will ensure transparency and accountability in the use of hard-earned premium dollars.

For more information on Obamacare and the 80/20 Rule, check out this HHS report.