According to a recent Kaiser Family Foundation report, this summer individuals and employers are expecting to receive $1.3 billion in health insurance rebates from insurance companies who did not meet requirements of the Medical Loss Ratio (MLR) provision of the Affordable Care Act (ACA). Under the health care law, insurers are required to pay rebates to consumers and employers if they do not comply with the MRL regulations.
The MLR requires insurance companies to spend a specified percentage of their income on health care claims and quality improvements. The remaining income can then go to covering administrative expenses, marketing and profits. If too much goes toward the latter, the insurer must pay rebates. These rebates act as an incentive to improve quality and seek lower premium increases.
There are two MLR thresholds.
- Large group plans – 85% must be spent on claims and quality improvements
- Individuals & small business – 80% must be spent on claims and quality improvements
The rebates for 2012 are estimated to be $1.3 billion and are due this August. Here is a break down by market:
- Individual market – $426 million, 215 insurance plans, 3.4 million people, average rebate $127
- Small group market – $377 million, 146 insurance plans, 4.9 million people, average rebate $76
- Large group market – $541 million, 125 insurance plans, 7.5 million people, average rebate $14
The rebates won’t make health insurance more affordable, but that’s not their purpose. The goal is to make insurers better align their premiums with their medical claims costs, forcing them to be more efficient and preventing them from charging too much.
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