Aug. 01--The Affordable Care Act requires health insurers to spend at least 80 percent (85 percent in the case of plans covering large employers) of the premium revenues they collect on direct health-care services for clients. Each year they fail to meet the standard, they are required by the law to refund a portion of the cost of the premiums to their customers or opt to lower future premiums. The first rebate checks from insurers that fell short of the standard in the past year go out today. An estimated $1.1 billion will be distributed to roughly 12.8 million people, most of whom bought coverage in the small-group and individual markets.

The aim of the so-called 80/20 rule, the Obama White House has said, is to ensure that consumers get fair value for their health-care dollar. Fair value in the form of a check in the mail is nice, but the rule serves an essential function as well. In the effort to improve efficiency and bend the curve on health-care costs, the 80/20 rule is one tool the new law applies as an incentive for insurers to retool how they do business.

Studies show, for instance, that administrative costs -- expenses including marketing, underwriting, claims processing, overhead and profits -- have risen rapidly, representing about 12 percent, or an estimated $105 billion, of annual expenditures in the private health insurance market. By imposing a minimum threshold for health-related spending, 80 percent and 85 percent, and a penalty for failure, the rule gives insurers good cause to try to hold down costs on activities that are not directly related to health care.

The thinking is that the rule will prompt insurers to increase efficiency in their operations and enable them to direct more of their resources into providing effective coverage for their customers. Critics contend, with reason, that the rule will not significantly contain costs in the $2.6 trillion health-care industry. Worth bearing in mind is that the rule forces insurers to put a premium on efficiency, which in the end does work to reduce costs. And better yet, consumers get the break when companies don't deliver.

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