Insurance companies to issue rebate checks

The regulation unveiled by the Health and Human Services department calls for insurance companies to spend at least 80 cents of the premium dollar on medical care and quality.

For employer plans covering more than 50 people, the requirement is 85 cents. Insurers that fall short of the mark will have to issue their customers a rebate.

Part of the new health care law, the rule is meant to give consumers a better deal. Administration officials said it will prevent insurers from wasting valuable premiums on administration, marketing and executive bonuses.

"While some level of administrative cost is certainly necessary, we believe that they have gotten out of hand," said Health and Human Services Secretary Kathleen Sebelius.

Some insurers have complained the approach is heavy-handed and doesn't take into account costs of marketing to individuals and small employers.

Indeed, some are threatening to pull out of the individual market, and four states - Georgia, Iowa, Maine and South Carolina - have already asked for an exemption from the federal rule, fearing it could lead to loss of coverage. But industry watchers said the final regulations wound up being more manageable than investors initially feared.

Analyst Les Funtleyder, who covers the industry for the Miller Tabak trading company, noted that HHS has wide latitude to adjust the rules to prevent market disruptions.