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Insurer Rebate Checks Going Out in August

By Dena Bunis, CQ HealthBeat Managing Editor

June 21, 2012 -- Insurance companies that spent more on administrative costs, salaries, and advertising in 2011 than the health care law allows will pay $1.1 billion in rebates to 12.8 million customers this summer, Health and Human Services (HHS) officials announced this past week.

The rebate checks are supposed to be in the mail by Aug. 1. HHS Secretary Kathleen Sebelius told reporters on a conference call that the payments will average $151 per family. Under the health care law (PL 111-148, PL 111-152), insurers in the individual and small group markets must spend 80 cents of every premium dollar on medical benefits or quality improvements and 20 cents on administrative costs. The medical loss ratio (MLR) standard for large group plans is 85/15.

Insurers not only have to send the money, but they also have to send policyholders an explanation of why they didn't meet the MLR standard. Such statements must go out with the checks. Even insurers who did meet the standard have to say so in future communications with their customers.

"Before the law was passed,'' Sebelius said, "some insurers reported spending as little as 60 percent of the premium dollar on care." That meant that insurers "saw record profits, while families saw record premiums," she added.

The announcement was one of a series of conference calls that Sebelius and other HHS officials have been conducting in the past weeks while the nation waits for the U.S. Supreme Court to rule on the constitutionality of the overhaul. A ruling is expected next week, the last week of the high court's term. White House and HHS officials have consistently refused to say what would happen to some of these benefits if the health care law is struck down. They wouldn't say whether the rebates would still go out if the justices find that the law is unconstitutional.

Not everyone will actually get a check. HHS officials outlined several ways people could see their MLR benefit:

  • a rebate check in the mail;
  • a lump-sum reimbursement to the same account they used to pay the premium, if by credit card or debit card;
  • a reduction in their future premiums;

If someone is part of a large employer-sponsored group, he or she would receive a pro-rated benefit, meaning if they paid 20 percent of the cost of the premium they would get 20 percent of the rebate value.

Also, last year, Internal Revenue Service officials said the rebate benefit would not be taxable.

HHS officials said they don't yet have a list to release of which insurers met the MLR standard and which did not.

Michael Hash, acting director of the Center for Consumer Information and Insurance Oversight (CCIIO) said two-thirds of policyholders, about 67 million people, were insured by a company that did meet the 80 percent threshold in 2011.

The MLR standard only applies to fully insured products; self-insured plans are not affected.

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