By August 2012, U.S. businesses that sponsor fully insured group health plans could share millions of dollars in rebates from health insurers who spent more on administrative expenses and profits than allowed by the Patient Protection and Affordable Care Act (PPACA), finds an analysis from the not-for-profit Kaiser Family Foundation.
The PPACA requires insurance plans to pay out a minimum percentage of premium dollars toward health care expenses and quality improvement activities, limiting the amount spent on administrative and marketing costs and profit. Under the law, large group plans are required to spend at least 85 percent of premium dollars on health care and quality improvement, while small group plans must spend at least 80 percent. These percentages are known as the medical loss ratio (MLR). If an insurer fails to meet the MLR within a market segment in a state, it must issue a refund to consumers and employers. For group plans governed by the Employee Retirement Income Security Act (ERISA), insurers generally will provide rebate amounts to the group policyholder, which often will be an employer or plan established by an employer. Self-funded plans are not subject to the MLR regulations.
The Kaiser Family Foundation report, Insurer Rebates under the Medical Loss Ratio: 2012 Estimates, finds that estimated rebates include $541 million in the large employer market, $377 million in the small business market and $426 million for those buying insurance on their own.
Among employers, 28 percent of the small group market and 19 percent of the large group market are projected to receive rebates.
The largest rebates overall are projected to go to consumers and businesses in Texas (total $186 million) and Florida ($149 million); Hawaii is the only state where no insurer is expected to issue a rebate.
The data for the insurance rebates are based on estimates provided by insurers in filings to the National Association of Insurance Commissioners in 2011. Actual rebates will be based on reports insurers submit to the federal government in 2012.
CMS Issues Guidance on Medical Loss Ratio Requirement, SHRM Online Benefits Discipline, May 2011
HHS Issues Rules on Medical Loss Ratio Requirement, SHRM Online Benefits Discipline, December 2011
SHRM Online Benefits Discipline
SHRM Online Health Care Reform Resource Page