Many Californians have questions about what their premium actually pays for. A premium is a monthly payment you and your employer pay for health coverage. The Affordable Care Act requires health plans to spend a certain amount of the money they get from premium payments on medical services and quality improvement efforts.
This is called the medical loss ratio rule. Health plans must spend at least 80 to 85 % of every dollar on medical costs such as hospitals, doctors, prescription drugs, and other services for its members Under the law, health plans may use the remaining 15 to 20% of your premium dollar to pay administrative costs to keep health plans running and to generate profit, unless the health plan is not-for-profit. Administrative costs may include the cost of employees, such as salaries and benefits, as well as office and marketing expenses, taxes, and other fees. The California Department of Managed Health Care helps to make sure that health plans meet these medical loss ratio requirements. The Department also reviews proposed premium rate changes to make sure health plans justify rate increases. If health plans don’t meet the Medical Loss Ratio requirements, they must issue rebates. Those rebates may be given a few different ways: Like, a check sent by mail Direct deposit, or a lower cost for a future premium If you have an individual health plan, you’ll get the rebate directly. If you have health insurance through your employer, the rebate is usually paid to the employer. The Medical Loss Ratio rule Saves money and worry, helps keep premiums down and gets you more value for your premium dollar. Visit the California Department of Managed Health Care website at for more information.