With the passage of health care reform law, the federal government established standards designed to guarantee that a significant portion of health insurance premiums go toward medical care and quality improvements, and not administrative costs.

Federal medical loss ratio requirements

Beginning in 2011, small group health insurance plans must spend 80 percent of premiums and large group health insurance plans must spend 85 percent of premiums on medical care and health care quality improvements, effectively limiting the amount that can be spent on administrative costs. This calculation is called the "medical loss ratio."

Previously, some states had their own requirements, but a national standard did not exist. According to the Department of Health and Human Services (HHS), the medical loss ratio provision will protect up to 74.8 million insured consumers.

Companies that fail to meet medical loss ratio requirements must issue rebate checks to subscribers in 2012. Up to 9 million consumers could be eligible for rebates worth up to $1.4 billion with an average rebate per consumer estimated at $164, according to the HHS.

Medical loss ratio waivers

A number of states have applied for medical loss ratio waivers, and Maine received a waiver on the grounds that there was a reasonable likelihood provisions would destabilize the state's individual health insurance market. Maine's adjusted medical loss ratio is 65 percent for two years, with a third year contingent on the state proving ongoing need.

In addition, the HHS issued waivers to some health insurance companies offering plans that feature low premiums but limited benefits. Certain companies, such as McDonald's Corp. and Home Depot Inc., use these types of plans, often called "mini meds," to provide health benefits to low-wage workers.

Finally, some health insurance companies have expressed concern about how patient care will be defined. Some argue the definition should include broker fees and other expenses incurred in the course of doing business.