Making Medicare Make Sense

Q: I am hearing stories about rebates on health insurance premiums. What is the story behind these rebates? Do I get one?

A: Many insurance companies spend a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead, and marketing. The bigger this portion is, the less health care is provided to you for each premium dollar you spend. Thanks to the Affordable Care Act, consumers will now receive more value for this premium dollar, because insurance companies will be required to spend 80 to 85 percent of premiums on medical care and health care quality improvement, rather than on administrative costs.  If they don’t, the insurance companies will be required to provide a rebate to their customers starting this year. This percentage is called the Medical Loss Ratio. This regulation will make the insurance marketplace more transparent and make it easier for consumers to purchase plans that provide better value for their money. 

This is especially important to consumers who purchase coverage in the individual market. 45% of plans sold in this market spend 25 cents or more of each premium dollar on administration. And in some extreme cases, insurance plans spend more than 50 percent of every premium dollar on administrative costs. 

The law requires insurers selling policies to individuals or small groups to spend at least 80% of premiums on direct medical care and efforts to improve the quality of care.  Insurers selling to large groups (usually 50 or more employees) must spend 85% of premiums on care and quality improvement.

If you are a policyholder in a plan that doesn’t meet these standards, you may be eligible for a rebate.

Q: Who qualifies for rebates, and how are they paid?

A: This rule does not apply to employers who operate what is called a self-insured plan. If you’re not sure whether your plan matches this description, ask your employer or check your plan materials.

Your health insurance company must report yearly to the Secretary of Health and Human Services on the share of premium dollars spent on health care services and quality improvement and any rebates required. The first report, covering calendar year 2011, was filed June 1, 2012. Information about which companies did not meet the standards is now posted at http://companyprofiles.healthcare.gov. Note that amounts shown are averages among all policies issued by a given company, and may vary for your specific plan.

In addition, consumers in every state will receive a notice from their insurance company informing them of the 80/20 or 85/15 rule, whether their company met the standard, and, if not, how much of difference between what the insurer did and did not spend, but were required to, on medical care and quality improvement will be returned to them. If you are going to receive a rebate, your insurance company must provide this notice, and a rebate for the difference, no later than August 1 each year, starting in 2012. If you are owed a rebate you will receive a reduction in your premiums, a rebate check—or, if you paid by credit card or debit card, a lump sum reimbursement to your account. If your employer paid all or part of your premium, the same share of any rebate may go to your employer. In 2012 average rebates per person could total $164 in the individual market.  Employers can also use your share of the rebate to lower future premiums, rather than paying you directly.

If you are not owed a rebate, the notice can be sent later, and included with other mailings sent by your insurance company.

For many consumers, the 80/20 (or 85/15) rules motivated their plans to lower prices or improve their coverage to meet the standard.  This is one of the ways this provision in the Affordable Care Act is bringing value to consumers for their health care dollars.