Billions in ACA rebates show 80/20 Rule’s impact

In the 13th year of MLR rebates, the rebate checks in 2024 amounted to nearly $958 million

Ever since 2012, millions of Americans have received rebates from their health insurers each fall, refunding portions of prior-year premiums that were essentially too high.

It’s all thanks to the Affordable Care Act’s medical loss ratio (MLR), which requires health insurance companies to use your premium dollars to pay for health care and quality improvements for plan participants, or return that money to you (or your employer, if your employer sponsors your health coverage). Specifically, insurers in the individual and small group market must spend at least 80% of premium revenue on medical claims and quality improvements, and that rises to 85% for large group plans. So administrative costs, including profit, cannot exceed 20% or 15% of premium revenue.

In 2024, insurers were required to pay nearly $958 million in rebates to more than 6 million consumers.¹ That was based on insurer revenue and spending for 2021-2023 (see below for a summary of each year's total rebates). The average rebate check in 2024 was $156, but there was considerable variation from one state to another, and from one market to another (individual, small group, and large group).¹

The individual market only covers about 11% of the US population,² but it accounts for a disproportionate share of MLR rebates. In 2024, the individual market accounted for nearly half of the total rebate checks.¹ (Note: For the more than 3.4 million people enrolled in employer-sponsored plans that didn't meet the MLR requirements, the rebates were sent to their employers, rather than to each enrollee.)

To clarify, the goal is to have insurers spending the majority of your premium dollars on medical claims so that rebates aren't necessary —and that's obviously working, as the vast majority of consumers do not receive MLR rebates in any given year (a little more than 6 million people received rebate checks in 2024). But given that insurers set premiums a year in advance, it's not always possible to accurately project membership (and thus revenue) and claims costs. So the rebates serve as a backstop, ensuring that even if premiums are ultimately set too high in a given year, the MLR rules still apply.

Although ensuring that the bulk of premium revenue is spent on non-administrative costs is a laudable goal, there are concerns that the MLR's design does little to drive down health care prices or limit premium increases over time, as insurers can simply respond to increasing claims costs by raising their premiums.³

Rebates vary by state and by insurer

To be clear, most people do not receive an MLR rebate check. This is because most insurers tend to comply with the MLR requirements, and because the MLR rules don't apply to self-insured plans,⁴ which cover the majority of people with employer-sponsored health insurance.⁵

Every year, there are some states where no rebates are issued (meaning all of the insurers in that state hit the MLR targets; this was the case in seven states in 2024).¹ And even in states where MLR rebates are issued, they're usually only sent out by a few insurers.⁶

For subsidized enrollees, rebate amounts can exceed net premiums

MLR rebates are paid to policyholders. In the case of employer-sponsored plans, the rebates are sent to the employer (who can pass them on to employees or use the money to reduce employees' future premiums or provide enhanced benefits). In the case of individual market plans, the rebate is sent to the individual who purchased the plan. The rebate amount is based on the full cost of the plan, regardless of how much of that cost was offset by a premium subsidy.

So even if the enrollee paid very little (or nothing at all) in premiums due to their subsidy, they receive the full amount of the rebate check if their insurer didn't comply with the MLR rules.³

The short story is that the rebate amounts might not seem "fair" at all. A person who paid very little in after-subsidy premiums might receive a significant rebate check, while their neighbor might receive no rebate check at all — even if they weren't eligible for a subsidy and had to pay what seemed an exorbitant monthly premium — because they were enrolled in a plan that met the MLR requirements. To reiterate, most Americans do not receive a rebate check. And the relative affordability of a person's premiums has little to no bearing on whether they'll end up receiving a rebate check.

The rebates that are sent out each fall are based on the average MLR for the prior three years.⁸ So the rebates that were sent out in 2024 were based on each carrier's average MLR for 2021 - 2022.

The majority of very large employers self-insure their employees' health coverage, and MLR rules do not apply to self-insured plans.⁹ There were also initially exemptions for non-profit insurers, although they had to begin complying with the MLR requirements in 2014. Some states received CMS approval to modify MLR requirements within the state in the early years,¹⁰ but there are no longer any states with MLR requirements that are lower than the federal rules (Massachusetts has a much higher MLR requirement, at 88% for individual and small group plans; New York's is 82%).

There were several states where no rebates were sent in 2024 (meaning all the insurers in the state were compliant with the MLR requirements). But in most states, at least some consumers received rebate checks in 2024, as had been the case in prior years. Here are the data for the rebates that insurers sent out in the fall of 2024:¹

The numbers above are statewide averages. CMS has a further breakdown by individual, small group, and large group markets.

GOP tried unsuccessfully to repeal the federal MLR rules in 2017, but MLR requirements appear to be here to stay

While the MLR provision has obvious appeal to consumers, it isn't universally loved¹² – and was among the ACA provisions in Republicans' crosshairs as they attempted to repeal the ACA in 2017. The Senate's 2017 Better Care Reconciliation Act (BCRA) would have eliminated the federal requirement that insurers spend the majority of premiums on health care. (That measure did not pass the Senate when it was introduced as a substitute for H.R. 1628 in July 2017.)

Under the BCRA, states would have become responsible for regulating insurers' administrative costs. This is similar to the approach that the first Trump administration took regarding insurers' network adequacy¹³ (although the Biden administration subsequently strengthened network adequacy rules by only allowing state oversight if the state's requirements are at least as stringent as federal rules),¹⁴ and it's in keeping with the GOP belief that regulatory authority should be concentrated at the state – rather than federal – level.

The Congressional Budget Office estimated that about half the U.S. population lives in states where the current federal MLR rules would have been maintained if the BCRA had been implemented, and the other half live in states where the rules would have been relaxed.¹⁵ "Relaxed" rules would have led to increased premiums (and of course, smaller MLR rebates), particularly for people who don't qualify for premium subsidies in the exchange.

As noted above, individual market rebates are sent to the policyholders, even if the bulk of their premiums were paid by the federal government via subsidies. But without an MLR requirement, insurers would be able to charge higher prices without having to worry about future rebates, and consumers who don't qualify for subsidies would be hardest hit.

GOP efforts to repeal the ACA in 2017 were not successful, and the Supreme Court upheld the ACA in 2021, for the third time in a decade. So insurers in every state still have to spend the majority of premium revenue on medical costs and quality improvements, rather than administrative expenses.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written hundreds of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.