One of the claimed successes by Obamacare supporters has been the distribution of rebates from insurance companies that did not reach the required percentages of spending on medical treatment under what is known as the “medical loss ratio.”
Under the Affordable Care Act, insurance companies that fail to spend 80% of their premium dollars on medical care in the individual and small group markets, or 85% for large-group employer-based plans, must return the balance of the premiums back to the subscriber. Abby Goodnough reports on this for the New York Times today. But she adds a new wrinkle that the supporters of the MLR might want to hide:
Insurers will pay out $1.1 billion this year, according to the Department of Health and Human Services, with an average rebate of $151 per household. The highest average amounts are going to people in Vermont ($807 per family), Alaska ($622) and Alabama ($518). No rebates will be issued in New Mexico or Rhode Island, because all the insurers in those states met the 80/20 requirement […]
So is your check in the mail? Don’t count on it.
Self-insured employers, which cover more than half the nation’s workers, are exempt from the new rule, as are Medicare and Medicaid. And of the 75 million people in health plans subject to the rule, only about 17 percent, or 12.8 million, will see a rebate this year, according to the Obama administration. Many individuals who buy coverage directly from insurers, such as self-employed people like Ms. Harkenreader, are receiving checks. But in most cases rebates are being sent to employers, who can chose to put them toward future premium costs instead of distributing them to workers. “I’ve been trying to explain that to people — that very few people would be getting a check,” said Timothy S. Jost, a law professor at Washington and Lee University who is an expert on the health care law.
I have personal experience with this, which only recently led me to understand this point. I have health coverage through my wife’s employer. We got a letter from Cigna in the mail saying that they were rebating X amount of dollars to the employer, because they did not reach the 85% medical loss ratio (I believe they said their ratio was actually 70%). But the money would get rebated to the employer, who could then do whatever they wanted with it. Cigna offered some suggestions for ways the employer could handle the rebate, like lowering the premium money it takes out of employee paychecks, increasing services in their health care program, or transferring it on directly to employees. But really it’s up to the employer. They are under no obligation to pass that on.
Now maybe some of the more generous companies will pass along this rebate in some manner. But I don’t think there’s any guarantee. And in the case of self-insured companies, which as the article notes is the norm for over half of those with employer-based health plans, those workers benefit from almost none of the regulations under the ACA. That’s a very under-the-radar revelation as well.
Perhaps medical companies will shift their premiums to account for this, lowering their end-of-the-year rebates. But I don’t see why. They’re essentially borrowing money from their subscribers at no interest. Sounds like a sweet deal. And the subscribers, in the case of those with employer coverage, may never see the benefit of the regulation.