Insurers Expected to Issue >$1 Billion in Rebates

By August 1, employers, employees, and individuals from across the United States will receive refunds from health insurance companies that failed to meet minimum standards set forth in the Patient Protection and Affordable Care Act (ACA).

An ACA provision, lauded by the Obama administration for looking out for consumers’ interests, set required medical loss ratios (MLRs) for insurers. Insurers covering employers or groups with ≥50 people must spend ≥85% of the premiums they collect on medical care, while those covering ≤50 people have a minimum of 80%.

Facing backlash for spending too much money on administrative expenses such as salaries, bonuses, and marketing costs, insurers are now required to devote a higher proportion of their revenues towards treating patients under the new rule.

To date, this requirement has been costly for insurers but a boon for President Obama as he seeks re-election this year. The rule went into effect on January 1, 2011; the upcoming rebates are for 2011 and thus the first paid out since the implementation of the MLR program.

In April, the Henry J. Kaiser Family Foundation released a report titled Insurer Rebates under the Medical Loss Ratio: 2012 Estimates. This report estimates that the rebates would be approximately $1.3 billion: $541 million in the large employment segment, $377 million in the small business market, and $426 million for individuals buying their own insurance. A projected 31% of people in the individual market will receive rebates compared with 28% in the small group market and 19% in the large group market. Employers and employees will share the money based on the percentage each contributes toward healthcare costs.

Nancy-Ann DeParle, assistant to President Obama and the White House’s deputy chief of staff, wrote a blog post on the White House’s website on June 5 touting the law’s positive benefits. As mandated, insurers must disclose the amount of their refunds. She cited a few examples, including some from Tennessee, Arizona, and California.

“This is just one way the new healthcare law is helping American families and businesses get a fair deal when it comes to their healthcare,” Ms. DeParle wrote.

For example, The Tennessean reported that UnitedHealthcare plans on issuing $5.7 million in rebates to 48,700 Tennessee residents covered by small group or individual insurance. A Cigna spokeswoman told the newspaper that 7% to 8% of its policyholders in Tennessee would be eligible for rebates.

In California, Anthem Blue Cross owes $38.6 million to 38,175 businesses covering 323,585 employees and family members plus $1.3 million to 407,429 individuals; Blue Shield of California owes $10.8 million to 260,671 customers; Kaiser Permanente owes $280,000 to 21,800 customers; and UnitedHealth Group, Inc owes $3.5 million to 4400 small businesses, according to the Los Angeles Times.

The Kaiser analysis found that each state (with the exception of Hawaii) is likely to issue rebates. Texas ($186 million) and Florida ($149 million) are expected to have the largest total rebates, while Alaska ($305 per individual) and Maryland ($294 per individual) are anticipated to have the highest per-person rebate costs. The authors of this report analyzed data from a database maintained by Mark Farrah Associates, a healthcare analytics company that compiled information filed with state insurance commissioners.

The results, tallied as of April 17, 2012, did not include estimates from insurers in California because the state’s department of managed healthcare regulates the plans, which are not required to report data to the National Association of Insurance Commissioners, according to the authors.

In the individual market, 215 plans covering approximately 3.4 million people will issue rebates, the report notes. Further, 146 plans covering approximately 4.9 million enrollees in the small group market and 125 plans covering 7.5 million enrollees in large groups are expected to issue some refunds.

Kathleen Sebelius, secretary of the US Department of Health and Human Services, announced in a blog post on the organization’s website in May that insurers must send letters to each business, organization, or individual that receives a rebate. The letters begin: “This letter is to inform you that you will receive a rebate of a portion of your health insurance premiums. This rebate is required by the Patient Protection and Affordable Care Act—the health reform law.”

Ms. Sebelius added that the MLR for all plans would be available online (www.healthcare.gov) beginning this summer, regardless of whether they were required to issue rebates. In another move aimed at increasing accountability and transparency, the ACA requires insurers to disclose when they plan to raise premiums by ≥10%. The rule, which was effective September 1, 2011, allows insurance experts in states or the federal government to review the proposed rates and determine if they are justified.