A report released on Thursday by the Kaiser Family Foundation (KFF) stated that by August consumers and businesses will receive rebates on their 2011 health care premiums totaling $1.3 billion due to the medical loss ratio (MLR) provision of President Barack Obama’s health care law.
A part of the Patient Protection and Affordable Care Act, the medical loss ratio went into effect on January 1, 2011 and requires that 80% to 85% of money paid in health insurance premiums to insurance companies must be spent on health care for customers, though according to the KFF report “Insurer Rebates under the Medical Loss Ratio: 2012 Estimates” states are allowed to petition for this to be adjusted if needed. While some states have requested to decrease this percentage, other states have enacted MLRs higher than the federal standards. However, this report does not capture in its data any increased rebates due to states with heightened MLRs.
Prior to the 2010 health care law and its MLR provision, many insurance companies invested a much lower percentage of their premiums received on actual health care costs, keeping the remainder as administrative costs, marketing costs, profit and to fuel the exorbitant pay and benefits of executives within their companies.
The primary purpose of the MLR is to protect consumers by keeping health insurance premium increases more in line with actual health care costs. If a rebate is not received by an individual or business that means that that enrollee’s insurance plan has enacted the MLR guidelines.
Out of the $1.3 billion to be refunded, $426 million will go to the individual market, $377 million will go to the small group market and $541 million will go to the large group market.
The average rebate for enrollees in plans paying rebates who had the insurance the full year of 2011 will be $127 per enrollee in the individual market, $76 per enrollee in the small group market, and $72 per enrollee in the large group market, with rebates for partial year customers adjusted accordingly. Due to varying state-level insurance laws as well as varying policies dependent upon each insurer the rebate will vary with customers from state to state and from insurer to insurer. Some customers will receive little or no money back while others will receive amounts well above the average listed.
About 31% of enrollees in the individual market will receive rebates. Rebates from insurance companies will be issued on behalf of 28% of small group market enrollees and 19% of large group market enrollees. Unlike individual market rebates, the rebates in the small and large group markets will be presented to employers who will then determine how to pass the rebates, if any, on to their employees and how much of the rebate the respective company is entitled to keep.
Claxton, Gary and Cox, Cynthis and Larry Levitt, Larry.“Insurer Rebates under the Medical Loss Ratio: 2012 Estimates.”kff.org. Kaiser Family Foundation. 26 April 2012. Web. 26 April 2012. pdf.