Employers and Consumers Due $1.3B in Rebates under Health Reform

May 1, 2012 (PLANSPONSOR.com) - Consumers and businesses are expected to receive $1.3 billion in rebates from health insurers who spent more on administrative expenses and profits than allowed by the Affordable Care Act (ACA).

An analysis from the Kaiser Family Foundation of the latest estimates provided by insurers to state insurance commissioners finds the rebates include $541 million in the large-employer market, $377 million in the small-business market, and $426 million for those buying insurance on their own. Rebates in the group market will generally be provided to employers, and in some cases be passed on to employees as well.

Rebates are expected to go to almost one-third (31%) of consumers in the individual market. Among employers, about one-quarter (28%) of the small-group market and 19% of the large-group market is projected to receive rebates. The share of consumers in the individual insurance market is expected to receive rebates ranges from near zero in several states to as high as 86% in Oklahoma and 92% in Texas.

The Kaiser Family Foundation explained that beginning in 2011, the ACA requires insurance plans to pay out a minimum percentage of premium dollars towards health care expenses and quality improvement activities, limiting the amount spent on administrative and marketing costs and profit. Under the law, large group plans are required to spend at least 85% of premium dollars on health care and quality improvement, while small group plans must spend at least 80%. These ratios are known as the Medical Loss Ratio (MLR). If an insurer fails to meet the MLR within a market segment in a state, they must issue a refund to consumers and employers.

The report for the analysis includes a data table with state-by-state information on the total dollar amount of projected rebates, the number of people enrolled in plans expected to provide rebates, the number of plans paying rebates, the average rebate across the entire market and the average rebate amount for those receiving them. The data is available for the individual, small group and large group markets.

The report can be downloaded from http://www.kff.org/healthreform/8305.cfm.