Health care reform
Due to the Medical Loss Ratio (MLR) mandate of health care reform, employers and consumers across the nation are expected to receive more than $1 billion in rebates for money they spent on health care insurance in 2012.
That estimate was provided by the Kaiser Family Foundation in May 2011.1
The MLR provision is designed to ensure that a set percentage of every dollar collected by health insurers as premium is used to pay a benefit to covered individuals. The percentage that must go toward benefits is 85% for health plans for large employers and 80% for health plans for small employers or individual plans.
The remaining 15% or 20% is the total part of the premium that the law allows health insurers to claim as profit, use for administrative expenses, pay in commissions, etc. In the individual market, the Department of Health and Human Services can adjust the MLR standard for a state if it appears that meeting the MLR standard could destabilize the individual market in that state.
Not all rebates will be distributed the same way.
Some individuals may receive an actual rebate check, while others may receive their rebate in the form of a discount on future premiums. Rebates in the group market will generally be provided to employers and in some cases when appropriate, these will be passed on to employees as well.
Rebates will be prorated for people enrolled in the health plan for only part of the year. Insurers must send notices to consumers informing them of the rebate and how it will be paid.
The Kaiser Family Foundation also estimated what the average rebate amounts are expected to be, with a break-down by market size.2
Note: Insurers offering coverage to large businesses in 14 states report that they do not expect to issue rebates this year.
It’s important to remember that the rebates are not designed to make health insurance more affordable, but to make insurers better align their premiums with their medical claims costs. This puts pressure on health insurers to be more efficient and prevents them from charging consumers more for premium than they need to in order to provide the health services enrollees need.
All individuals or employers eligible for rebates must receive notices.
In a final rule issued on May 11, 2012, the Department of Health and Human Services amended the original MLR regulations on implementing (MLR) standards for how this information should be communicated for the 2011 plan year.
Important note: For 2012, all health insurers have to report 2011 data, even if they do not owe a rebate. This is in support of Health and Human Services efforts to educate consumers on what to expect with rebates.
Impact on employees and individuals — Those with individual coverage may receive higher rebates — an average of $127 as compared to rebates of $14-$21 — but the amount won’t significantly offset the high cost of individual coverage or create an appreciable decrease in group plan premiums for employees.
Impact on employers — Employers who receive rebates may see a small decrease in premium. For example, a business with 40 employees might receive a total rebate of about $560. This amount is relatively small when compared the average premium for employee coverage, which is now more than $10,000 per employee per year.3
Impact on brokers — Brokers will play an important role in assisting employers with questions and medical carriers around potential rebates.
However, the MLR requirements may accelerate a move to new models of broker compensation, such as fee-based consulting, and may compel more brokers to broaden their portfolios with other valuable, non-medical benefits.
* Based on the average rebate expected for this group of $14 per employee.