Under the health-care overhaul, insurers beginning this year must spend at least 80 percent of the premium dollars they collect on medical claims or quality improvement efforts. Administrative expenses and profits are limited to 20 percent or less of what they collect. Those that don’t meet these new “medical loss ratio” standards have to refund the extra premiums collected to consumers. (In insurance lingo, medical claims paid are considered “losses.”)
“[It] has to do with making sure consumers are getting value for their premium dollar,” Sarah Lueck, a senior policy analyst at the Center on Budget and Policy Priorities, says of the new provisions.
Avoiding big rebates
While Aetna’s move may not be unprecedented, it is also not the norm. “It certainly is possible” that premiums have been reduced on occasion for particular individuals or groups, says Robert Zirkelbach, a spokesman for America’s Health Insurance Plans. But if so, the trade group’s data, which track average premiums, don’t show it. “Premiums are going up every year,” he says. Since 2005, the average family health insurance premium has increased 27 percent, according to the Kaiser Family Foundation’s annual employer health benefit survey.
Premiums are based on a number of factors, including claims, the price of medical goods and services, and regulatory requirements. As the economy continues to struggle, consumers have cut back on their use of medical services. The request for a rate decrease in Connecticut reflects this lower-than-anticipated use, says Aetna spokesman Mohit Ghose.
That’s where the medical loss ratio, or MLR, requirement comes into play, say health-policy experts. “If you have an insurer whose costs are leveling off and it continues to increase premiums, then there’s going to be a day of reckoning,” says Jost. “They’ll have to pay a big rebate.” By lowering premiums now, Aetna avoids this eventuality.
The Obama administration estimates that starting in 2012 the MLR provisions may result in as many as 9 million people being eligible for rebates totaling $1.4 billion; in the individual market, where people who don’t get insurance through their workplace can purchase coverage, the average rebate could be $164 per person.
Elsa Obuchowski would like to be one of them. The Norwalk, Conn., resident, who is a freelance textbook editor, pays $520 a month for a UnitedHealthcare policy with a $2,500 deductible. This year, Obuchowski’s increase was 4.5 percent, but in previous years it’s been as high as 14 percent, she says. Even though her own premium won’t be affected by Aetna’s move, she’s heartened by it. “It sounds very hopeful,” she says.