Health-Care Reform Brings Insurance Rebates

If you have health insurance, you may be getting some money back this summer.

Consumers and small businesses will receive an estimated $1.3 billion in premium rebates from insurers that last year failed to meet new federal health care reform standards designed to purge excessive administrative costs and profit-taking from America's health plans.

The new standard, known as the "medical loss ratio," or MLR, requires an insurer to spend at least 80% of your premium directly on your medical care if you purchased your own policy, or 85% if you're insured under an employer's plan. When those marks are missed, the Affordable Care Act requires the insurance company to refund the difference. The first of these annual rounds of insurance rebates, which cover premiums collected last year, must be issued by Aug. 1.

Many who buy own insurance will get rebate

The latest rebate estimates by the nonpartisan Kaiser Family Foundation are based on an analysis of 2011 premium data that insurers filed with the National Association of Insurance Commissioners.

The Kaiser study projects that nearly one-third (31%) of consumers who buy their own insurance will receive rebates, and so will more than a quarter (28%) of small businesses that insure their workers. About one-fifth (19%) of major employers are expected to get rebates -- $541 million worth.

"In total amounts, the large-group market is expecting the most rebates, but that is because that's the way most people receive private insurance," says Cynthia Cox, a Kaiser fellow and co-author of the study. "If you look at it per person, those who buy insurance on their own can expect some of the highest rebates."

Average rebate would buy a few fill-ups

How much can you expect? The study estimates that enrollees in the individual market will receive rebates of $127, on average. Small businesses will get rebates averaging $76 for each enrolled employee, and big businesses will receive an average of $72 per enrollee. The largest rebates are expected in Texas ($186 million) and Florida ($149 million). Hawaii is the only state where no insurer will be required to issue a rebate.

Kaiser says businesses that receive insurance rebates will, in some cases, pass the money on to employees.

Brian Chiglinsky, spokesman for the federal Centers for Medicare & Medicaid Services, says rebates will be issued by check or as a credit toward the next premium.

"In either case, it will be accompanied by a letter that explains what the MLR is, what their rate was and why the company didn't meet it," he says. "Companies that do meet the MLR standard should also send a notice that explains MLR and says, 'We've met this standard, so you're getting fair value for your premium dollar.'"

Insurers are no fans of rebates

While consumers are likely to welcome the rebates, the MLR program is really designed to punish insurers that spend too much on things such as overhead and executive bonuses.

"Yes, consumers should feel great to get some money back," says Chiglinsky. "But they should bear in mind that it's money they should not have been charged in the first place." He adds that the MLR results, which will be posted on this fall, should help consumers shop for insurance offering the best value once the new state health exchanges open in 2014.

Health insurers are not thrilled with the insurance rebates program, to put it mildly, according to Robert Zirkelbach, spokesman for America's Health Insurance Plans, an industry trade group.

"MLR is the absolute wrong way to get health care costs under control," he says. "Instead of focusing on what the data shows is the real driver of rising health insurance premiums, which is underlying medical costs, it is capping health plan administrative costs, which have been consistent for about the last decade. " Supreme Court case is a question mark

Deborah Chollet, a senior fellow at Mathematica Policy Research in Washington, D.C., says some rebates may be the result of foot-dragging by insurers in the 26 states challenging the health care reform law in the Supreme Court.

"Some carriers in those states are kind of in denial about the Affordable Care Act," she says. "They've known where they stood on these rebates since last fall. They're busy now calculating good 2013 premiums."

Chollet, who is helping states set up the new health exchanges, says the MLR program and its insurance rebates were designed to put the onus on insurers to find other profit streams, ideally by renegotiating with service providers to lower health care costs.

"I think what HHS (the Department of Health and Human Services) is saying is: 'This shouldn't be the consumer's problem, it should be the insurance company's problem,'" she says. "Their much-lauded nimbleness needs to come into play now."

Will the MLR test stand if the Supreme Court rules against the health care reform law?

"That is the multibillion-dollar question," says Chollet, "and I don't see anybody placing bets these days."