How are administrative costs for health plans impacted by the Affordable Care Act?

The Affordable Care Act (ACA) introduced the medical loss ratio (MLR) requirement, which fundamentally changed how health plans manage their administrative costs relative to healthcare expenditures. Under the ACA, health insurance companies are required to spend a minimum percentage of premium dollars on medical care and improvements to healthcare quality rather than on administrative costs or profits. For large group plans, this percentage must be at least 85%, while for individual and small group plans, it is at least 80%.

This requirement inherently limits administrative costs, effectively establishing a framework within which these costs need to remain below certain thresholds. Option B accurately reflects this by stating that administrative costs (including profits) must remain below 20% for individual and small group plans, aligning with the ACA's MLR provisions. This promotes efficiency and demands that a significant portion of the funds collected from premiums is utilized for direct healthcare services rather than administrative expenses.

The accuracy of this option highlights the ACA's goal to increase the value of care provided to patients by ensuring that a substantial majority of health plan expenditures contribute directly to medical services rather than administrative functions.