Does Your Insurance Carrier Owe You Money?

A new report says that insurance companies will be paying over $1 billion in refunds, thanks to the Affordable Care Act.
Business Writers
May 02, 2012

If you're a small business owner who provides health benefits to your employees, there's a good chance you'll get a check in the mail from your insurer in August.

Exactly how good of a chance? Greater than one in four, actually.

According to analysis by the nonpartisan Kaiser Family Foundation, health insurance providers are expected to owe businesses and individuals an eye-popping $1.3 billion this year. That's because of the Medical Loss Ratio provision of the Affordable Care Act, which requires insurance companies to spend at least 80 percent of small groups' premium expenses on patient care and quality improvement, and limit administrative costs to 20 percent of premium contributions. If they go over the limits, they've got to hand out rebates for the difference. (Although many large employer plans already meet that standard, it’s the first time the government has imposed such a requirement on the entire health insurance industry.)

The MLR rule, as it's called, went into effect January 1, 2011, making this the first year insurer rebates will be issued. Kaiser analyzed the insurers' filings to state insurance departments (all figures exclude California, where data was not available.)

States and Rebate Amounts

According to the report, 28 percent of small business employers offering benefits in 42 states will receive a rebate. (Small group plans cover approximately 4.9 million enrollees.) Nationwide, 246 insurance plans are expected to hand back an estimated $377 million to small business.

The average amount is projected to be $76 per enrollee, though amounts are estimated to be much higher in states such as Alaska ($517), Alabama ($203), Oregon ($172), Louisiana ($170) and Massachusetts ($167).

Insurers offering coverage to small businesses in eight states (Hawaii, Minnesota, North Dakota, New Hampshire, New Mexico, Rhode Island, South Dakota and Vermont) are not expecting to issue rebates.

The most likely to receive rebates are small businesses and their employees in the District of Columbia (92 percent), South Carolina (85 percent), New Jersey (79 percent), Florida (73 percent) and Missouri (72 percent). One insurer in New Jersey reports that it already issued nearly $19 million in rebates to small group enrollees.

There's Always a Catch

The insurance industry says those receiving rebates shouldn't be too delighted, because premiums are likely to rise because of the new benefits and other requirements of the law. Robert Zirkelbach, a spokesman for industry trade group America's Health Insurance Plans, told the Insurance Journal that "the net of all the requirements will be an increase in costs."

The Kaiser report suggested the opposite, saying the rebate requirement could keep insurers from hiking premiums—both to avoid criticism and having to pay out refunds later.

“The presence of these thresholds and the corresponding rebate requirement have provided an incentive for insurers to seek lower premium increases than they would have otherwise,” the report said. “This 'sentinel’ effect on premiums has likely produced more savings for consumers and employers than the rebates themselves.”

Employers don't have to pass their rebates on to workers, and can also take them as a discount on next year’s premiums.

The future of rebates, like everything else about the health care reform laws, is wait-and-see: The Supreme Court decision on the fate of the overhaul is not expected until June.

Image by OPEN Forum

Business Writers