Health insurance plans owe $1.1 billion in rebates

June 20, 2012

Millions of consumers and businesses will receive $1.1 billion in rebates this summer from health insurance plans that failed to meet a requirement of the new health-care law, according to the Health and Human Services Department.

That Affordable Care Act rule requires insurance companies to spend at least 80 percent of subscriber premiums on health-care claims and quality improvement initiatives. The other 20 percent is left for administrative costs and profits.

Health insurance plans that don’t hit that threshold will send a rebate to consumers to cover the difference.

There could, however, be one big hitch. If the Supreme Court overturns the health-care law — a decision that could come as early as Thursday morning — experts say those checks are unlikely to hit Americans’ mailboxes.

“If [the Supreme Court] says the law is unconstitutional, insurers couldn’t be forced to pay rebates based on unconstitutional laws,” said Tim Jost, a law professor at Washington and Lee University.

In a new report, the Obama administration found that 12.8 million Americans will receive rebates this year, with an average value of $151 per household.

“The big improvement here is a better value for the premium dollar,” said Mike Hash, interim director of the Center for Consumer Information and Insurance Oversight. “What this standard encourages issuers to do is be prudent in their administrative expenditures, so the bulk of the premium dollar is going to pay for benefits.”

Hash would not speak to what might happen to the rebate checks should the Supreme Court strike down the law. “We are quite confident the court will uphold the Affordable Care Act in its entirety,” he said.

This requirement — known in the law as the “medical loss ratio standard” — came into effect on Jan. 1, 2011. Rebates will go to customers in plans that exceeded the limit last year.

The rebates will go to those in both individual and group plans, with the amount varying greatly by state. Consumers in Vermont’s individual market will see the country’s biggest rebates, averaging $807. In Washington, D.C., 592,234 households will receive rebates averaging $157. The 141,129 Maryland residents receiving rebates will see a higher amount, $340, while in Virginia, 686,738 customers will be rebated an average of $115.

Not all money will flow directly to consumers: For those who receive insurance through their workplace, the health insurance plan will send a rebate to the employer. It is then the employer’s responsibility to either pass that rebate on to the individual or use it in other ways that may benefit the employee, such as lowering premiums for the next year.

Customers in every state will, however, receive a notice with information on the new requirement, whether their insurance plan missed the threshold and, if it did, by how much.

In future years, the Obama administration says the level of rebates may decrease as health insurance companies become increasingly compliant with the spending rules.

“It’s not a failure of the policy if the level of rebates goes down,” Hash said. “The goal is to give consumers more value for their premium dollars.”

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