Jane Dotson
The 85/15 rule is a term that is used in the healthcare and education sectors. In healthcare, the 85/15 rule, also known as the 80/20 rule, requires health insurance companies to spend at least 80% of premiums on healthcare costs and quality improvement activities. The remaining 20% can be allocated to administrative, overhead, and marketing costs. In the education sector, the 85/15 rule regulates the number of supported veteran students in a program, ensuring that at least 15% of students are non-veterans or unsupported veterans. This rule was established to prevent predatory school abuses and protect veteran benefits. While the applicability of the 85/15 rule in the insurance marketplace is unclear, there are references to the Affordable Care Act's health insurance marketplace, which may be relevant. Additionally, proposed changes to the Marketplace enrollment and eligibility rules by CMS in 2025 could bring about wide-ranging effects on consumers' access to Marketplace coverage and financial assistance.
| Characteristics | Values |
|---|---|
| Name | 85/15 Rule, 85 percent rule |
| Application | Regulates the number of supported veteran students in a program at a given time, insurance companies' spending |
| History | Established by Congress in 1952 to combat predatory school abuses that began after the Servicemen's Readjustment Act of 1944 |
| Education | Prohibits the Department of Veterans Affairs (VA) from paying benefits to students enrolling in a program when more than 85% of the students have tuition fees paid for them |
| Insurance | Requires health care insurers to use at least 85% of healthcare premium dollars to provide medical care, with the remaining 15% spent on administrative costs |
Other Insurance Rules
- 80/20 Rule: Requires insurance companies to spend at least 80% of premiums on healthcare costs and quality improvement activities.
- 2025 Marketplace Integrity and Affordability Proposed Rule: Aims to enhance program integrity by reducing the risk of improper enrolments and fostering a more stable insurance market.
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What You'll Learn
The 85/15 rule and the Affordable Care Act
The 85/15 rule is part of the Patient Protection and Affordable Care Act, which sets a 15% threshold on the amount of premium dollars that insurers can spend on administrative costs (such as salaries, sales, and advertising). This rule applies to companies that maintain fully insured group health plans.
Under the 85/15 rule, a health care insurer that uses less than 85% of healthcare premium dollars it receives to provide medical care and activities designed to improve healthcare quality must rebate the difference to the covered employers by a specified date or apply the rebate amount to the employers' health insurance premiums. Companies that receive this rebate can either use it to pay future premium costs or share it with the employees covered under the plan.
The 85/15 rule is also sometimes referred to as the 80/20 rule, which generally requires insurance companies to spend at least 80% of the money they receive from premiums on healthcare costs and quality improvement activities. This rule does not apply when an insurance company has fewer than 1000 enrollees in a particular state or market, and it also does not apply to grandfathered plans.
The Affordable Care Act's health insurance marketplace is currently facing proposed changes that would affect consumers' access to marketplace coverage and financial assistance. These changes include a shorter open enrollment period and modifications to premium costs and out-of-pocket limits.
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Rebates and premium costs
The 85/15 Rule, also known as the Medical Loss Ratio (MLR) or the 80/20 Rule, is a provision of the Patient Protection and Affordable Care Act. It sets a threshold on the amount of premium dollars that insurers can spend on administrative costs, including salaries, sales, and advertising. Under this rule, insurance companies must use at least 80% of the premium dollars they receive for providing medical care and improving healthcare quality. This means that out of every premium dollar, 80 cents must go towards paying for medical claims and activities that enhance the quality of care.
The rule also mandates that if an insurer spends less than 85% (80% for smaller employers) of healthcare premium dollars on medical care, they must rebate the difference to the covered employers. These rebates can be used to pay future premium costs or shared between the company and the covered employees. The 85/15 Rule ensures that insurance companies prioritize spending on healthcare services and quality improvement rather than administrative expenses.
The 85/15 Rule is separate from the proposed changes to the Affordable Care Act's health insurance Marketplace by the Centers for Medicare & Medicaid Services (CMS). These proposed changes include shortening the annual open enrollment period, modifying regulations for consumer access and financial assistance, and updating the methodology for calculating premium adjustment percentages. The goal of these changes is to enhance program integrity, stabilize the insurance market, and align annual adjustments with premium trends.
It is important to note that the 80/20 rebate rules do not apply when an insurance company has fewer than 1000 enrollees in a particular state or market, and they also exclude grandfathered plans. The definition of a "grandfathered plan" is provided by the U.S. Department of Labor Technical Release No. 2011-04 and Internal Revenue Service FAQs.
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Administrative costs
The 85/15 rule, also known as the Medical Loss Ratio (MLR) or the 80/20 rule, places a limit on the amount of money health insurance companies can spend on administrative costs. Administrative costs refer to expenses such as salaries, sales, advertising, administrative, overhead, and marketing costs.
Under the 85/15 rule, health insurance companies are required to spend at least 85% of the premiums they receive on medical care and quality improvement activities. This means that only 15% of premium dollars can be allocated to administrative costs. The rule was implemented to ensure that a significant portion of premium payments are directed towards providing medical care and improving healthcare quality.
The rule applies to health insurance companies offering plans on the Affordable Care Act's health insurance Marketplace. If an insurance company fails to meet the 85% threshold, it must provide a rebate to the covered employers or apply the rebate amount to future health insurance premiums.
It is important to note that the 85/15 rule does not apply universally to all insurance companies or plans. For example, insurance companies with fewer than 1000 enrollees in a particular state or market may be exempt from this rule. Additionally, the rule specifies different thresholds for smaller employers, with a requirement to spend at at least 80% of premiums on healthcare costs and allowing up to 20% for administrative expenses.
The 85/15 rule is subject to changes and updates. For instance, proposed rules for the 2025 Marketplace enrollment suggested a shorter open enrollment period, which could impact consumers' access to Marketplace coverage and financial assistance. These changes aim to enhance program integrity, stabilize premiums, and foster a more stable insurance market.
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Employee notifications
The 85/15 Rule, as part of the Patient Protection and Affordable Care Act, sets a 15% threshold on the amount of premium dollars that insurers can spend on administrative costs such as salaries, sales and advertising. This rule applies to companies that maintain fully insured group health plans.
If your company has received an 85/15 Rule rebate check, you must use the funds in one of two ways. You may use the rebate to pay future premium costs under the plan, or you may retain a portion of the rebate and share the rest with the employees covered under the plan. If the rebate is not used to reduce future premiums, it should be allocated between the company and the participating employees, based on the proportion of the premiums paid by each.
If your company receives an 85/15 Rule notice from its insurers, you should notify the employees participating in their health care plans, in writing, as to whether their insurer has issued a cash rebate or reduced certain future premium amounts, and what the effect on participants will be.
- A brief explanation of the 85/15 Rule and its purpose, including the fact that it is part of the Patient Protection and Affordable Care Act.
- Details of whether the company has received an 85/15 Rule rebate check, and if so, the amount of the rebate.
- An explanation of how the company plans to use the rebate, including whether it will be used to pay future premium costs or shared with employees. If the rebate is being shared with employees, the notification should include the method for calculating the allocation between the company and employees.
- If the company has received an 85/15 Rule notice from its insurer, employees should be informed of this, and provided with details of any cash rebate or reduction in future premium amounts that will affect them.
- Contact details for any employees who have questions or require further information about the 85/15 Rule or the company's employee benefits plan. This could include the name and contact details of a specific person or team within the company, or a link to relevant information on the company's website.
- Information about any other changes to the employee benefits plan, such as any proposed rule changes that may affect employees' costs and access to Marketplace coverage. For example, the proposed rule changes for 2025 and 2026 include a shorter open enrollment period, higher maximum out-of-pocket limits for Marketplace health plans, and a new methodology for calculating the premium adjustment percentage.
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Proposed changes to the insurance marketplace
The Affordable Care Act's health insurance Marketplace is subject to a number of proposed changes, outlined by the Centers for Medicare & Medicaid Services (CMS). These changes are expected to bring wide-ranging modifications to consumer access and financial assistance.
Firstly, the open enrollment period will be shortened in all states. Secondly, the CMS has proposed stricter income verification processes, where applicants will be required to submit proof of income if data from the IRS is unavailable. CMS has also proposed allowing issuers to require payment of past-due premiums before new coverage is approved, which is expected to reduce adverse selection and foster a more stable insurance market.
Additionally, the definition of "lawfully present" will be amended to exclude DACA recipients, making them ineligible for certain benefits such as enrolling in a Qualified Health Plan (QHP) and premium tax credits. The CMS has also proposed updating the methodology for calculating premium adjustment percentages, which will impact the maximum annual limitation on cost-sharing and required contribution percentages.
The proposed changes have sparked concerns about increasing healthcare costs for millions of families, particularly those with pre-existing health conditions or facing unexpected serious illnesses or injuries. Critics argue that the changes will worsen coverage options and reduce enrollment, negatively impacting market stability.
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Frequently asked questions
The 85/15 rule, also known as the 85 percent rule, is a regulation that standardises the ratio of supported to non-supported students in an educational program. The rule requires that a minimum of 15% of students in a program are non-veterans or unsupported veterans.
If the number of supported students exceeds 85%, only those students who maintain continuous enrolment can continue to qualify for their educational benefits. The Department of Veterans Affairs (VA) will not pay benefits to students enrolling in a program that exceeds the 85% threshold.
No, the 85/15 rule is specific to educational programs for veterans. However, there is an 80/20 rule in the insurance marketplace, which requires insurance companies to spend at least 80% of premiums on healthcare costs and quality improvement activities.
