By Julie Appleby
Associated Press
Millions of consumers and small businesses will receive an
estimated $1.3 billion in rebates from their health plans this summer under a
provision of the health care law that effectively limits what insurers can
charge for administration and profits, a new study projects.
Almost one third of people who bought their own insurance
last year will get rebates averaging $127, according to an analysis of state
data by the nonpartisan Kaiser Family Foundation. (KHN is an editorially
independent program of the foundation.)
"This alone is not going to make health insurance
affordable for large numbers of people, but it is getting excess administrative
cost out of the system," says Larry Levitt, a study author.
The percentage of consumers and businesses in line for
rebates varies widely by state. In Texas, for example, 92 percent of consumers
who purchased individual policies are expected to get rebates because insurers
spent too little of their premium dollars on medical care. But in Vermont,
Rhode Island, Iowa and Hawaii, insurers are likely to owe less than 1 percent
of consumers who bought policies on the individual market.
Under the federal law, insurers must spend at least 80
percent of premium revenues on medical costs or quality improvements; the
remainder can go toward administrative costs, sales commissions and profits. If
companies set premiums too high, rebates in the form of checks or discounts off
future premiums are due consumers and businesses by Aug. 1.
The requirement, aimed at holding insurers more accountable
and slowing premium increases, went into effect last year and applies to all
health plans, except those offered by self-insured employers. Insurers had
criticized the rule as being too strict, while sales agents feared insurers
would reduce their commissions.
The figures are based on the latest estimates insurers
provided state regulators, so the actual rebate amounts may differ, according
to the report's authors. The total dollar projection is similar to one released
Wednesday by a Goldman Sachs analyst, but slightly lower than one made
previously by the government, which had said rebates could be worth up to $1.4
billion.
Nationally, an estimated 3.4 million people who bought their
own coverage are projected to receive rebates this year from 215 insurance
plans, according to the study. The biggest dollar amounts are expected to go to
consumers in Alaska, where per person rebates are expected to average $305,
Maryland, $294, Pennsylvania, $243 and Idaho, $241. Insurers hit the spending
targets for policies sold directly to consumers in several states, including
Hawaii, Maine and the District of Columbia, so no rebates are expected for
individual consumers there.
More than a dozen states sought to relax the standard for
insurance sold directly to consumers, saying it would cause insurers to
withdraw from their markets. The Obama administration granted seven such
requests, choosing to phase in the requirement between now and 2014 in Georgia,
Iowa, Kentucky, Maine, Nevada, New Hampshire and North Carolina.
Rebates averaging $76 per enrollee are projected to go to
more than one quarter of small businesses nationally, covering an estimated 4.9
million people. When averaged by state, the biggest per-enrollee rebates will
go to businesses in Alaska at $517 and Alabama, at $203 and Oregon, $172. No
rebates will go to small businesses in eight states, where insurers met their
spending targets, including Hawaii, Minnesota and North Dakota.
For the most part, insurers who offer coverage to large
employers met the targets. Still, 19 percent of large employers, covering 7.5
million people, are likely to get rebates averaging $72 per member. Employers
must use some or all of the rebate for the benefit of workers.
America’s Health Insurance Plans, the industry trade group,
said the spending rule could have unintended consequences, potentially causing
some insurers to withdraw from certain markets and that it does not address the
biggest reason for rising premiums – underlying health care costs.
“Moreover, the taxes, benefit mandates and other regulations
in the health care reform law will cause premium increases that far exceed the
value of any prospective rebates,” the group said in a written statement.
Ana Gupte, a senior health industry analyst at Sanford
Bernstein, says insurers in some markets lowered premiums to avoid paying
rebates, but others risked having to pay a rebate because they didn’t want to
underprice their policies. Some insurers may have miscalculated — and thus owe
a refund — because of lower-than-expected utilization of health care kept their
medical costs below projections, she says.
Looking ahead, Gupte expects to see fewer rebates in future
years "because utilization (of medical care) will go back up, so the
spread between pricing and cost will get narrower."
Still, Alexandria-Va.-based health industry consultant
Robert Laszewski says the projected rebates are so small as to count mainly as
a "rounding error" that most consumers won't even notice.
"If it saved you $200 on a $10,000 premium, does it
feel like your insurance is more affordable?" asked Laszewski, a former
insurance industry executive. He said some sales agents who saw insurers reduce
their commissions as a result of the law have also begun charging clients a fee
for helping them choose a policy.
But consumer advocate Timothy Jost, a professor at
Washington and Lee University School of Law, says the goal was never to deliver
large refunds.
"The purpose isn't to generate rebates, but to force
insurers to align their premiums more closely with their (medical) claims
costs," says Jost. "Each year, premium costs have gone up more than
medical costs, so what the rule does is force insurers to be more efficient
and, if they charge too much, to give some back."
Kaiser Health News is an editorially independent program of
the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy
research and communications organization not affiliated with Kaiser Permanente.
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