Health Insurers to Pay $500M in Rebates

June 25, 2013

U.S. insurers will pay $500 million in rebates to employers and individuals this summer because of President Barack Obama’s healthcare law, about half the amount they paid last year.

The law, often called Obamacare, requires companies to refund customers when they spend less than 80 percent of premiums they collect on medical care.

The Department of Health and Human Services attributed the decline in rebates to insurers’ adhering more closely to this requirement and to lowering premium rates for their products.

The government agency said on Thursday that 8.5 million insurance customers would receive an average rebate of about $100 per family after August 1. For 2011, 4.1 million people received about $152 per family, or a total of $1.1 billion.

The Affordable Care Act goes into full effect on Jan. 1, 2014, when an expansion of the Medicaid health plan for the poor and subsidized state health exchanges take hold. In recent weeks, states have begun publishing premiums for new insurance products for those exchanges.

The Medical Loss Ratio, or MLR, portion of the law was first applied in full in 2011 and limits spending on administrative costs, salaries and bonuses.

Gary Cohen, deputy administrator at the Centers for Medicare and Medicaid Services, said that the insurers were paying fewer rebates in 2012 than in 2011 because they were more strictly following the law and charging lower premiums.

The centers also said the MLR rule, a new insurance rate review process that requires rate increases of more than 10 percent to be reviewed, and competition had contributed to a savings of $3.4 billion among 77.8 million people due to lower spending on premiums last year.

Cohen said other market forces could be contributing to the lower premiums. Growth in healthcare spending has slowed during recent years as consumers have cut back on doctors’ services and the trend is forecast to continue.

“As they’ve adjusted their prices to the new rule, as they’ve become more efficient and more cost effective, two things happen: the number of rebates goes down and the corresponding amount of premium that people have to pay for the value they are getting for insurance comes down as well,” Cohen said during a telephone briefing with reporters.

Aetna Inc., the third-largest U.S. insurer, said that MLR rebates represent 0.2 percent of the premiums it collected in 2012.

“We are delivering savings to our customers through competitive pricing, rather than waiting for a rebate check,” Aetna spokeswoman Cynthia Michener said in statement.

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