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Lower MLR Rebates, But Also Lower Premiums, CMS Officials Report

By Dena Bunis, CQ HealthBeat Managing Editor

June 20, 2013 -- Consumer rebates under the health law's medical loss ratio (MLR) rule will total less than a quarter of what insurance companies paid out in 2012. That, say federal officials, shows that the incentives in the overhaul are working.

Under the health law (PL 111-148, PL 111-152), insurers who do not spent 80 cents of every premium dollar on care for patients as opposed to administrative fees, advertising and profits must pay the difference back to policyholders. In August, rebate checks totaling $500,000 will go out to 8.5 million consumers, for an average of $100 per family, Centers for Medicare and Medicaid (CMS) officials said last week. In 2012, rebates totaled $1.1 billion, went to 12.8 million consumers and averaged $151 per family.

Gary Cohen, director of the Center for Consumer Information and Insurance Oversight, said on a conference call with reporters that the 2012 results show insurers are getting with the program. "This means that more insurance plans are adjusting to the market and learning to operate more efficiently and cost-effectively," he said.

Another reason for the much lower rebates, Cohen said, is because in many states there were no MLR rules in place so insurers had to adjust their premiums and spending a significant amount to avoid the rebates. Last year was the first time plans had to comply with the new MLR regulation.

While the amount of the rebates went down, CMS officials have calculated that in addition to the rebates, the public saved $3.4 billion in premium costs they would have paid had the new MLR system been in effect.

The reasons the 80/20 rule moderates premiums is that if insurers price their policies at a premium rate that doesn't allow them to meet the standard, "they have to give the money back," Cohen said. "The incentive is to be at least at the standard."

Cohen acknowledged that the $3.4 billion in up-front premium savings can not all be attributed to the MLR.

"Other aspects of the Affordable Care Act contributed to this and other market forces," Cohen said.

The bottom line, said Cohen, is that "this year compared to last year, what we've seen is that the medical loss ratios are going up, administrative costs and premiums are going down."

A variety of studies have shown that health care costs have been moderating. New figures released this week by the Labor Department showed that for the first time in almost four decades, consumer health care costs fell. Labor officials attributed the decline to a combination of factors, including the cost of insurance, prescription drugs, doctor visits, medical supplies and hospital stays.

Not all consumers will get a rebate check in the mail. Other ways the money can be returned to them include:

  • A lump-sum reimbursement to the same account that they used to pay the premium if by credit card or debit card;
  • The rebate can be used to reduce future premiums;
  • Employer can send insured workers a check or use the money to reduce premiums, or can apply the rebate in another way, such as by providing more generous benefits.

"Consumers are finally seeing a real shift in the way health insurance companies spend their hard earned dollars," Sen. Jay Rockefeller, D-W.Va., said in a statement. "Thanks to the Affordable Care Act, gone are the days when insurers could put paper pushing, marketing and other frivolous costs ahead of care. Transparency is changing the system and I'm all for it." During the health law debate, Rockefeller pushed for the MLR requirement.

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