“Health insurance companies, now required to spend the lion’s share of premium revenue on patient care, are looking for higher investment returns elsewhere. As a result, they’re increasingly putting money into technology ventures where they expect to realize higher returns.
The medical-loss ratio standard under the Patient Protection and Affordable Care Act requires insurers to spend at least 80% of what they earn from premiums on patient care and related quality improvements. No more than 20% can be used for administrative, marketing and business expenses. The requirement is as high as 85% for large group plans.
Tied to that, insurers are trying to maximize their investment returns while also investing in businesses that are exempt from the 80/20 rule. Technology operations check off both those boxes for them.
“That’s been a catalyst for a substantial amount of investment,” said Joshua Kaye, a Miami-based partner at law firm DLA Piper. “We’re really seeing it on a national scale. Many insurers view health IT as being on the cutting edge.””