What effect does the ACA have on insurance companies' spending practices?

The Affordable Care Act (ACA) imposes a requirement known as the "Medical Loss Ratio" (MLR) on insurance companies, mandating that they spend a minimum percentage of premium dollars on medical care and health services rather than on administrative costs or profits. This requirement typically specifies that insurers must spend at least 80% of premium revenue on medical care for individual and small group plans, and at least 85% for large group plans. By setting these standards, the ACA aims to ensure that consumers receive value for their premium payments, ultimately leading to improved healthcare quality and access.

This focus on mandating a certain level of spending on medical care helps contain costs and promotes accountability among insurers, compelling them to prioritize patient care over administrative expenditures. The law includes provisions for refunds to policyholders if companies fail to meet these MLR standards, further incentivizing insurers to comply with the requirement.