This summer, health insurance companies may have to pay more than a billion dollars back to their own customers. The rebate requirements were introduced as part of the 2010 healthcare reform law and are meant to benefit consumers. But now, an insurer-supported Senate bill aims to roll them back.
Known as the medical loss ratio rule, it’s actually pretty simple. The provision from the healthcare law says that 80 to 85 cents of every dollar insurers collect in premiums must be spent on medical care or activities that improve the quality of that care. If not, they must send their customers a rebate for the difference. The goal, according to the Department of Health and Human Services, is to limit the money insurers spend on administrative costs and profit.
“It essentially ensures that consumers receive value for every dollar they spend on health care,” HHS spokesman Brian Chiglinsky told ProPublica.
Last month, Senator Mary Landrieu, D-La.,introduced a bill that would change what kinds of costs companies can include in the 15 to 20 percent they are allotted for overhead, salaries, and marketing. The bill, similar to a House bill introduced last March that has yet to come a vote, focuses on payments to insurance agents and brokers. Traditionally, these commissions are bundled into the administrative costs when making the final calculation. But insurance regulators have argued that fees paid to insurance agents and brokers shouldn’t count.
Such a change could mean big savings for insurance companies—and much smaller rebates for consumers.
This is the first year companies are required to send out rebates. According to a report by state insurance commissioners, if rebates had been handed out last year, insurers would have had to pay consumers almost $2 billion. If they had carved out the broker fees, as proposed in the two current bills, consumers would only get about $800 million.
Landrieu’s office did not immediately respond to our call for comment.
“[The bills] would water down the standard to a point where it becomes ineffective,” said Sondra Roberto, a spokeswoman for the non-profit advocacy group Consumer Union. The group, which also publishes Consumer’s Report, recently urged members to oppose the bill.
The rebates have gotten relatively modest attention. Only 38 percent of the public is even aware of the rule’s existence, according to a Kaiser poll.
Insurance companies have come out in support of the two bills, claiming that the rebate rule as it stands now stifles jobs and actually drives the cost of insurance premiums up. A government report last year found that most insurance companies were in fact lowering their premiums to meet the requirements, as the administration had hoped.
While most insurance companies were able to hit the 80-85% target, the few that didn’t may be required to send out rebates this year.
"Some insurance companies pay an inordinate amount, as much as 40 percent, on administration and profit and not health care," said the Consumer Union’s Roberto.
The rules on rebates differ slightly depending on whether the insurance comes from a large-group plan (employers with over 100 employees), a small-group, or individual plan. In each case, insurance companies will be required to make all their costs publically available, so consumers can see how their premium dollars are spent.
The government granted insurance companies in seven states extra time to meet the requirements. Insurers who serve states with more rural populations, for example, tend to have higher overhead costs and so cannot as easily meet the requirement, according to Eric Fader, a New York healthcare lawyer. But the government decided that for all other states, there wasn’t any risk to the market by enforcing the requirement, and that the federal government didn’t “need to coddle an inefficient insurance company,” Fader said.