Health Insurance Report™ helps you track and analyze legal, legislative, and regulatory developments affecting the health-insurance industry throughout implementation of the Affordable Care Act...
2012 Medical Loss Ratio Rebate Estimate
Key Finding: Thirty-one percent of individual market enrollees likely to be eligible for rebates averaging $127.
Industry Response: Health insurance industry says there will be coverage disruptions and unintended consequences of MLR.
By Sara Hansard
Insurance companies will refund 15.8 million health insurance policyholders $1.3 billion in rebates by August under a health care reform requirement that insurers spend at least 80 percent of premiums on medical claims or quality improvements, according to an analysis released April 26 by the Kaiser Family Foundation.
The Patient Protection and Affordable Care Act requires individual and small group plans to meet medical loss ratio (MLR) requirements by spending at least 80 percent of premiums on medical claims or quality improvements, and large group plans to spend at least 85 percent. If they do not meet the thresholds, they must refund the difference to consumers. The first rebates are due to be paid by Aug. 1 for plans that did not meet the thresholds in 2011, when the requirement took effect.
According to the Kaiser analysis, $541 million in rebates will be made to about 7.5 million enrollees in the large group market; $426 million will go to 3.4 million individual plan enrollees; and $377 million will go to 4.9 million small group enrollees. Rebates in the group market will usually be sent to employers, and in some cases be passed on to employees, the analysis said.
“This study shows that asking insurance companies to put more of their premium dollar towards patient care rather than administration and profits is not only popular but also effective,” Kaiser President and Chief Executive Officer Drew Altman said in a statement. “There are tangible benefits for consumers and employers.”
The study said that the rebates are “not particularly large in many instances,” but they are “among the more tangible effects of [PPACA] felt by consumers until the major provisions of the health reform law go into effect in 2014.”
The report added that the rebate estimates do not show the “full impact” of the MLR thresholds. It said that the MLR has provided an incentive for insurers to seek lower premium increases than they would have otherwise, and in some cases premiums have even decreased. “This 'sentinel' effect on premiums has likely produced more savings for consumers and employers than the rebates themselves,” it said.
Rate reviews required under PPACA, in which states and the federal government review increases exceeding 10 percent, also may have encouraged insurers to moderate premium requests, the report said. “While these provisions of [PPACA] are not likely to solve the problem of rising health insurance premiums or do much to restrain underlying health care costs over the longer term, they can help to ensure that consumers and businesses get greater value for their premium dollar,” it said.
The study is based on preliminary estimates filed with the National Association of Insurance Commissioners (NAIC) as of April 17, the Kaiser report said. The source of the data was the Health Coverage Portal, a market database maintained by Mark Farrah Associates. Actual rebates will be based on reports insurers submit to the federal government later this year, the report said. California data were incomplete, as many plans in that state are regulated by the state Department of Managed Health Care, and data were not available, it said.
A Kaiser Family Foundation spokeswoman told BNA in an email that Kaiser could not release information about individual insurers under the agreement it has with Mark Farrah Associates.
Thirty-one percent of individual market enrollees are expected to receive rebates, which will average $127 for each of the 215 plans paying the rebates on an annual basis, the study said; rebates will be prorated for those insured for less than a year. Twenty-eight percent of small group market plans, 146 plans, will pay rebates averaging $76, the study said. Nineteen percent of the large group market, 125 plans, will pay rebates averaging $72, it said.
The highest average rebates for individual purchasers are expected to be $305 in Alaska, $294 in Maryland, $243 in Pennsylvania, $241 in Idaho, and $236 in Mississippi, the report said.
In the individual market, 92 percent of enrollees in Texas, 86 percent in Oklahoma, 84 percent in South Carolina, and 83 percent in Arizona were mostly likely to be eligible for rebates, the report said. Consumers and businesses in Texas were projected to receive a total of $186 million in rebates, and Florida was expected to receive $149 million, it said. Hawaii was the only state where no insurer is expected to issue rebates, it said.
In seven states for which the Department of Health and Human Services approved adjustments to the MLR to avoid individual market destabilization, the share of enrollees projected to receive rebates and the average rebate amount are below the national average, the report found.
In an April 26 statement, America's Health Insurance Plans (AHIP), which represents about 1,300 health insurers with 200 million enrollees, said that the MLR “does nothing to address the real driver of premium increases: the underlying cost of medical care.”
Taxes, benefit mandates, and other regulations in PPACA “will cause premium increases that far exceed the value of prospective rebates,” AHIP says.
“Given the inherently unpredictable nature of health care costs, it is not surprising that some health plans expect to pay rebates to consumers in certain markets,” AHIP said. “However, the coverage disruptions and other unintended consequences of imposing a new arbitrary federal cap on health plan administrative costs are likely to outweigh any benefit these rebates will provide to consumers,” it said.
Taxes, benefit mandates, and other regulations in PPACA “will cause premium increases that far exceed the value of prospective rebates,” AHIP said. An analysis by management consulting firm Oliver Wyman estimated that a new sales tax on health insurance tax imposed under PPACA beginning in 2014 will increase premiums by an average of 1.9 percent to 2.3 percent in 2014, and by an average of 2.8 percent to 3.7 percent by 2023, AHIP said.
In addition, AHIP said, the MLR regulation could “turn back the clock” on some delivery system reforms, as well as quality improvement and fraud prevention initiatives that insurers may not get credit for as quality improvements.
By Sara Hansard
The Kaiser Family Foundation's analysis of medical loss ratio rebates in 2012 is at http://www.kff.org/healthreform/8305.cfm.
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