Insurance companies spend most of their income on payments for health care. For the first time, there is a federal standard required by the Affordable Care Act (ACA) on how much these companies must spend.
For large employers, at least 85 percent of premiums must be “spent on health care services and health care quality improvement,” according to the Department of Health and Human Services (HHS). For small employers, the rule is 80 percent.
Additionally, the HHS ruled that “If insurance companies do not meet these goals because their administrative costs or profits are too high, they must provide rebates to consumers. The rule is discussed under the heading "Bringing Down Health Care Premiums" as part of the official explanation of the ACA.
