Did You Receive Your Health Insurance Rebate?

Summary: Health insurance rebates are planned to be distributed this summer by companies that have exceeded the Medical Loss Ratio. Will you be one of the recipients?

As part of the PPACA, insurance companies are now held to Medical Loss Ratios, sometimes referred to as the 80/20 rule. In a nutshell, insurance companies are supposed to spend 80% or more of the premiums they receive on medical care and 20% or less on administrative costs. For larger companies, the Medical Loss Ratio is 85/15. Companies whose Medical Loss Ratio falls outside these limits are required to issue refunds to either the policyholder or the employer (if it is group coverage). The Medical Loss Ratio is calculated by taking the total claims paid out by the company (its loss) divided by the total revenue for the company. Some estimates say that more than 8 million people will receive rebates this summer, which equates to over $500 million. In 2012, 13 million were distributed.

What are the issues surrounding the rebates?

• The Medical Loss Ratio provides an incentive for insurance companies to inflate premiums. If the ratio is too high, rebates are issued to insurers. If they are too low, the government doesn’t share the loss.
• The rebate program will make it more difficult for new health plans to enter the market. Is the 80/20 rule appropriate and feasible for startup companies?
• The rebate program may encourage mergers and consolidation among insurance companies to achieve economies of scale.
• The rebate program discourages innovation.

While on the surface the rebates seem like a good thing, there are negative consequences as well. What will our healthcare system look like in a few years? Will there be only a handful of insurance companies left? Will they be those that opted to participate in the exchanges?