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Kaiser Study Projects $1.4 Billion in Medical Loss Ratio Rebates

By Jane Norman, CQ HealthBeat Associate Editor

April 26, 2012 -- Some consumers will be getting a happy surprise when later this year health insurers ship out rebates mandated by new medical payout requirements in the health care law, according to a new study issued on last week by the Kaiser Family Foundation.

It's one way that the controversial health care overhaul (PL 111-148, PL 111-152) might rise in public opinion at a crucial time, when the U.S. Supreme Court is considering whether to strike it down entirely or in part and President Obama is in the thick of his re-election campaign.

The study estimates that $1.3 billion will be distributed to policy holders and employers this year, including $426 million in the individual market, $377 million in the small group market and $541 million in the large group market. Kaiser notes that the largest sum is in the large group market, but that's also an insurance segment that covers many more customers.

Rebates will vary among states and among insurers, and in some states none will be paid. But in other places, it will be a substantial chunk of change that can be paid out either in the form of checks or in discounts on future insurance coverage. Kaiser estimates that the largest rebates in the individual market will be paid out in Alaska, at an average $305 per person; Maryland, $294 per person; Pennsylvania, $243 per person; Idaho, $241 per person; and Mississippi, $236 per person.

Kaiser says that overall, a third of all Americans with policies in the individual market will get rebates, including 92 percent of Texans, 86 percent of Oklahomans and 84 percent of South Carolinians. In total, 215 individual insurance plans covering 3.4 million people will be sending out rebates, said Kaiser.

The rebates are being issued under medical loss ratio (MLR) standards that were included in the law and took effect at the beginning of 2011. It requires insurers to spend a certain minimal amount of premium dollars on medical care or improvements in quality—80 percent for individual policies and 85 percent for big groups. If the insurance companies do not do so, they must issue rebate checks to consumers the next year.

Seven states have received temporary reprieves from the requirements in the law that were granted by the Department of Health and Human Services.

Drew Altman, president of the foundation, said the study shows that the law may continue to divide Americans but there are "tangible changes" that benefit consumers. "Greater regulatory scrutiny of private insurance is improving value and helping to get excess costs out of the system," he said.

Some Republican members of Congress would disagree and have sponsored legislation (HR 2077) that would repeal the new standards. Another bill (HR 1206) would exclude broker fees from the MLR calculations.

The analysis was completed by Kaiser with the assistance of the company Mark Farrah Associates, and based on data reported to state insurance departments.

In the small group market, 146 plans will pay rebates to 4.9 million consumers, about 28 percent of everyone enrolled in such plans. Small businesses and employees in the District of Columbia, South Carolina, New Jersey and Florida are most likely to see rebates.

In the large group market, most employers are expected to be in compliance with the new standards. Insurance companies in 14 states say they don't expect to issue any rebates. Kaiser says that overall, 125 insurers say they will issue rebates to 7.5 million enrollees.

For group plans, individual employees may or may not actually see the rebates. Kaiser says that insurers will provide the rebates to the group policyholder, usually an employer or a plan established by the employer. What the employer or plan does with the rebates and how they are used for the benefit of enrollees depends on what kind of plan it is, under provisions in the law, says Kaiser.

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