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.


Insurer Rebates under the Medical Loss Ratio: 2012 Estimates

Checks In The Mail: Millions Expected To Receive Insurance Rebates Totaling $1.3 Billion

Healthcare rebates scheduled for August

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At Extend Health we like to keep an eye on trends in the health care and insurance industries, and lately one big trend is erosion of the clear boundaries between providers and payers – specifically, insurance carriers who are positioning their businesses to cope with the cost-control challenge they face as MLR requirements of the Affordable Care Act (ACA) start to kick in.

The trend of hospitals expanding into regional super-providers, buying up physicians groups and ancillary service providers, has been going on for some years now. But recently there has been a spate of activity among carriers who are expanding into new areas, buying companies or forming partnerships to offer new services both to patients and providers. Carriers are also investing in ways to educate patients and increase compliance with preventive and wellness measures, improve patient care coordination among their provider networks, and help patients find the services they need. A few examples follow:

  • Aetna recently announced Whole Health, a new insurance plan available to employees of small businesses. Employees who are covered under the plan receive lower co-pays if they get their care through Arizona’s Banner Health Network, Aetna’s ACO partner on the plan. The Whole Health plan is built on the ACO model of care, using electronic medical records (EMR) technology to allow providers to share patient information and data so they can better coordinate care. Employees will also have access to technology in the form of on-line tools that will help them do a better job of managing their health.
  • UnitedHealthcare (UHC) purchased XLHealth Corp., a Baltimore-based provider of programs for managing Medicare beneficiaries with chronic conditions such as diabetes. XLHealth’s model includes a variety of interventions enabled by health information technology to address the needs of its Medicare membership. For example, XLHealth members may be provided with advance home monitoring tools used to gauge their health status on a daily basis.
  • UHC also recently opened a consumer storefront, dubbed a “comprehensive health benefits store” in Flushing, New York. The store is meant to serve as a prototype for future consumer-support centers around the country. The center gives UHC plan members access to customer service representatives who can explain benefits, resolve claims issues, and help with other insurance-related matters. Specially-trained staff will also be available to help both UHC plan members and nonmembers find and apply for state and federal financial aid for such things as prescription drugs, food stamps, and heat and electric subsidies. Visitors to the center will be able to use available computers and iPads to find and print health-related information, and a health-screening kiosk will measure blood pressure, pulse and body mass index. Finally, the center will host an ongoing series of free-to-the-public seminars on topics such as nutrition and exercise, disease management, and financial planning.
  • Taking another tack, Humana has acquired Anvita, a health care analytics firm – a move that will allow Humana to give actionable clinical data to health care organizations, which they can use to improve patient outcomes and reduce costs. Humana will offer Anvita’s suite of software to hospitals and physician practices within its network.
  • Humana also recently bought a company that employs care managers for seniors with chronic illnesses. SeniorBridge, a clinical care company based in New York, provides in-home care for chronically ill patients. According to SeniorBridge, its beneficiaries have fewer unnecessary hospitalizations, falls, and emergency department visits.
  • CareFirst BlueCross BlueShield in Ohio has teamed up with Cardinal Health on a clinical pathways program for Rheumatoid Arthritis (RA). The partnership engages nearly 70 rheumatology practices who will participate in a “treat-to-target” approach to RA care – testing different treatment options until a patient’s symptoms are in remission. The goal of the program is to find ways to standardize the way rheumatologists treat RA patients.

Many of these programs are targeted at Medicare beneficiaries for several reasons, not the least of which is the funding and support provided by the ACA-instituted Center for Medicare and Medicaid Innovation (CMI). Seniors are also a good target for finding care improvements and cost efficiencies – older people generally need more health care services, and are far more likely to suffer from one of the 15 chronic conditions that account for 44% of total U.S. health care expenses.

There are many other examples; these are just a representative few. Looming MLR target requirements, along with the economic downturn, are making it imperative that carriers push for efficiency. It’s encouraging to note that so many carriers are looking for ways to improve efficiency by also improving patient care, enlisting both providers and consumers in improving health and managing chronic conditions.

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We have been tracking efforts across the health care industry to reduce costs and provide better health care. We’ve noticed that insurance carriers are getting more involved in the delivery of health care benefits to accomplish these goals. Here are three articles that discuss this trend and the various approaches being taken.

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The recently announced CMS Comprehensive Primary Care (CPC) Initiative will increase Medicare payments to primary care providers who adopt a coordinated care model. This model centers around teamwork between doctors, specialists and providers working together to prevent and manage chronic diseases. HHS officials expect this coordination to yield improved quality and cost savings.

The CPC demonstration project will take place in five to seven markets selected by the CMS. According to recent KHN article, “CMS is looking for areas with multiple interested insurers, both public and private. These insurers will then help target and select about 75 practices in each market.” The providers selected will receive $20 per month for each Medicare beneficiary during the first two years. They can use these funds at their own discretion to develop the infrastructure necessary to support coordinated care.

The CPC initiative will test two models at the same time: a service delivery model that will test comprehensive primary care, and a payment model where primary care practices will be paid a fee and could potentially share in Medicare savings generated. CMS will evaluate providers after a year and determine the amount of Medicare savings they will share.

This four-year CMS demonstration project will begin next year. Insurers who want to participate must submit a letter of intent by November 15, 2001. Applications are due January 17, 2012. After CMS selects the markets, solicitations for primary care providers in those markets will be issued. Funds should start going out in the summer of 2012. Over time, CMS expects to expand the coordinated care model to all patients.

For more information read these articles from CMS Innovations and Kaiser Health News.

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One of the provisions of the Affordable Care Act (ACA) requires insurance companies to publicly disclose and explain rate increases that are defined as unreasonable. The ACA also made $250 million available to help states protect consumers from unreasonable rate hikes, and over the last nine months 45 states and the District of Columbia used $44 million in grants to improve their rate review oversight capabilities.

Starting today, September 1, 2011, those states with effective rate review systems will begin reviewing rate increases that have been proposed for 2012. In the few states that do not yet have an effective system, HSS will handle the rate reviews. If the new rate is 10% or higher “for non-grandfathered plans in the individual and small group markets” the insurer will have to publicly disclose the rate and post justification for the increase on its website.

As of August 15, 2011 43 states had effective review programs in place for both the small group and individual markets. This CMS Fact Sheet has more details and a complete list of the rate review program status in each state.

Additional Resources:

Implementation Timeline

Fact sheet

HHS news release

States with effective rate review programs

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We thought some of you would be interested to learn about a webinar we’re hosting next month. You’ll find the details below. See you there!

Learn how Michele Levine, Director of Global Benefits, Avon Products, Inc., met her organization’s goal of reducing administrative burden and costs while providing retirees with health care benefits of equal or better value by leveraging a Medicare insurance exchange.

During this webcast you will learn:

  1. How Avon was able to provide its retirees with more choice and better value for their health care dollars
  2. How Avon reduced OPEB liabilities, simplified administration, and made health care benefits for retirees sustainable
  3. Details of Avon’s decision making process, communication protocol and successful results

Webinar Details:
September 15th, 2011
10:00 am PST/1:00 pm EST
Register today!

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Published August 26, 2011 by InsuranceNewsNet, here’s an excerpt from a very interesting article written by our CEO, Bryce Williams titled “Will Exchanges Empower Health Insurance Consumer?”

“As it stands right now, consumers have no guarantees regarding rate hikes. If we are serious about controlling health insurance costs in America, we need more than a regulatory watchdog; we need to empower American consumers.”

You can read the full article on

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Governor Sam Brownback of Kansas announced on Tuesday that his state would return a $31.5 million “Early Innovator” grant received in February to “design and implement the Information Technology (IT) infrastructure needed to operate Health Insurance Exchanges” as mandated by the ACA.

The U.S. Department of Health and Human Services (HHS) awarded grants to seven states, including Kansas, so they could lead the way on, “building a better health insurance marketplace, one that allows individuals and small-business owners to pool their purchasing power to negotiate lower rates. Using these new funds, the Early Innovator states will develop Exchange IT models that can be adopted and tailored by other states.” Of the seven states that received a grant, Kansas is the second to reject it. Oklahoma returned its $54 million grant in April.

In his statement justifying the return, Governor Brownback said, “There is much uncertainty surrounding the ability of the federal government to meet its already budgeted future spending obligations. Every state should be preparing for fewer federal resources, not more. To deal with that reality Kansas needs to maintain maximum flexibility. That requires freeing Kansas from the strings attached to the Early Innovator Grant. The early innovator grant does not address the most important issue in health reform, which is slowing the rate of cost growth in health care.” Others have indicated that the decision may be due, at least in part, to political pressure from special interest groups.

Note that Governor Brownback does not provide any suggestions for how health care growth costs might be slowed, although it does say Kansas will search for solutions that will work for the state. Extend Health would argue that state exchanges will play a critical role in cost containment by introducing consumer empowerment and carrier competition to the market – helping consumers to find and pay for health care plans that cover only their specific needs at a cost they can afford.

The governor’s statement is available here.
You can read the HHS press release announcing the “Early Innovator” grants here.

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Consumers and small businesses may soon be able to find affordable coverage via the new Affordable Care Act (ACA) program called the Consumer Oriented and Operated Plan (CO-OP). At least that is the hope as the U.S. Department of Health and Human Services (HHS) recently unveiled regulations for the new program.

Established by the ACA, the CO-OPs are defined as member-governed, non-profit organizations that are consumer focused and accountable to their members. In addition, profits must be utilized to reduce premiums or to improve benefits and/or the quality of care provided to members. The ACA has allocated $3.8 billion in funding for repayable loans to help qualifying insurers with start-up and capitalization costs. These interest-bearing loans “will only be made to private, non-profit entities that demonstrate a high probability of becoming financially viable,” stated a recent HHS/CMS press release.

Leading up to the passage of the ACA there were concerns that individuals and small groups lacked sufficient choice in the private insurance market. Proponents pushed for alternative sources of coverage, including the public insurance option, which they felt would provide greater choice and competition.

Instead of the highly controversial “public option” the ACA included the Consumer Operated and Oriented Plan program to develop state or regional health insurance plans that would be run by consumers and be accountable to their members instead of investors. While opponents argued that health plans run by consumers would lack the scope and leverage of the public option, policy makers included the CO-OP program to provide the competition they felt was lacking.

Opinions differ on the viability of the CO-OPs, with critics predicting that most of them will be too small to succeed and will end up defaulting on their loans. Others point out that restricting membership to individuals and small businesses will increase the risk assumed by these small companies, making it more likely they’ll fail. Proponents claim that CO-OPs are a partial antidote to the highly concentrated health insurance market in this country, where two or three for-profit insurance companies account for more than 65% of the market in most states.

To learn more visit:
Kaiser Health News

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There is a very interesting study that was released recently that deals with the impact generic drugs are having on costs. According to the report, generic drugs are playing a key role in keeping drug costs down. As patents on brand name drugs expire, the trend toward using cheaper generic drugs is expected to continue through 2015. The study found that average daily prices for eight of the ten most common drug classes covered by Medicare Part D have fallen from $1.50 in January 2006 to $1.00 in December 2010, and are expected to reach 65 cents by the end of 2015. This trend should be good news for those worried about Medicare Part D costs. If you would like to read the entire article, “Medicare Part D sees falling drug costs: study” you can find it here.

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