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

Medical loss ratio forced carriers to devote more premium dollars to care. The proof of its impact? $2.8 billion refunded to consumers.

Over the next several weeks, you could be receiving a nice rebate check from your health insurance company. Last year, nearly 1,600 people in Hawaii ended up with rebate checks that averaged $1,339 per family — the highest average in the nation (which seems a little unfair – since if you live in Hawaii, most of us would already consider you lucky).

It’s all thanks to the Affordable Care Act’s medical loss ratio (MLR) – a provision sponsored by Minnesota’s Sen. Al Franken that forces health insurance companies to use your premium dollars to provide actual health care and quality improvements for plan participants, or return that money to you. In 2016, insurers were required to pay nearly $397 million in rebates to more than 4.8 million people, bringing the total over five years of the program to nearly $2.8 billion.

To clarify, the goal is to have insurers spending the majority of your premium dollars on medical claims so that rebates aren’t necessary. 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.

While the MLR provision has obvious appeal to consumers, it isn’t universally loved – and has been among the ACA provisions in Republicans’ crosshairs as they strive for repeal of the law. Does that mean the provision endangered? More on that in a bit, but first …

Rebates? What rebates?

The rebates are tied to the medical loss ratio: the percentage of insurance premium dollars spent on actual health care – as opposed to marketing, administrative expenses, and CEO salaries. If an insurer spends less than 80 percent of individual and small-group plan premiums (85 percent for large-group plans) on providing medical care, they must rebate the excess dollars back to plan members and employers via checks that are sent out by September 30 each year.

The majority of very large employers self-insure their employees’ health coverage, and MLR rules do not apply to self-insured plans. There were also initially exemptions for non-profit insurers, although they had to begin complying with the MLR requirements in 2014.

Although the MLR rules are an important regulatory tool, the majority of insureds do not receive a rebate check, as most insurers’ administrative costs are less than the allowable amount. (About 4.8 million people received rebates in 2016; that’s less than 1.5 percent of the population.)

This summer, you could be receiving a nice rebate check from your health insurance carrier. Its all thanks to the Affordable Care Act medical loss ratio (MLR)  a provision sponsored by Minnesota™s Sen. Al Franken that forces health insurance companies to use your premium dollars to provide actual health care for plan participants, or return that money to you.

Rebates consumers received in 2016

The rebates that were sent out by carriers in 2016 were based on the average MLR for the prior three years (2013 to 2015). The rebates that are sent out in 2017 will be based on each carrier’s average MLR for 2014 to 2016, and so forth.

2016 was the fifth year of payouts through the 80/20 rule. From 2012 to 2014, total rebate amounts dropped significantly each year. But the total rebate amount in 2015 ($469 million) was higher than it was in 2014; for the individual market, the rebate amount in 2015 was the highest it had been since 2012 (the first year the rebates were sent out). In 2016, however, the total rebate amount dropped again, although it was still higher than it had been in 2014.

Across all market segments, the majority of insurers are meeting or exceeding the MLR rules, which is why most people don’t receive MLR rebate checks. According to the data that was calculated in 2016 (for plan years 2013-2015), the average individual market MLR was 91.8 percent and the average small group MLR was 85.6 percent (both well above the 80 percent minimum requirement). In the large-group market, the average MLR was 90.1 percent, also well above the 85 percent minimum requirement for that market segment.

Total rebate amounts so far have been:

In 2016, the 4.8 million consumers who received rebates were in 2.8 million families. Among them, the average family’s rebate was $138 ($124 in the individual market, $142 in the small-group market, and $146 in the large-group market). Although fewer people received rebates in 2016 than in 2015, and the total amount that was rebated in 2016 was smaller, the average per-family rebate was a little larger in 2016 than it had been in 2015. (The average family’s rebate was $129 in 2015 – $139 in the individual market, $134 in the small group market, and $102 in the large group market.)

The highest average (per household) rebates among families that received them in 2016 were in Hawaii, where average rebates were $1,339 – nearly ten times as much as the national average. Hawaii also had much higher-than-average MLR rebates in 2015 ($1,597 per household that received them).

In six states (up from four the year before), there were no MLR rebates necessary in 2016, because all of the insurers met the MLR requirements: Maine, Montana, North Dakota, South Dakota, Vermont, and Wyoming (incidentally, Wyoming had the highest average MLR rebates in 2015; in a small market like Wyoming, a few expensive claims can have a very significant impact on MLR numbers).

So although nobody received a rebate check in those six states in 2016, that’s a good thing — it means that all of the insurers in those states spent at least 80 percent (at least 85 percent for large group plans) of premiums on medical claims and quality improvements, as opposed to administrative costs.

But in most states, at least some consumers received rebate checks in 2016. See the statistics for your state below.

Premium rebates returned to consumers in 2016

State Total Rebates Consumers Benefiting Average per Family
Alaska $55,840 89 $235
Alabama $1,252,727 7,792 $249
Arkansas $3,928,423 86,923 $58
Arizona $5,750,456 58,430 $185
California $37,164,457 294,867 $233
Colorado $1,737,038 5,975 $376
Connecticut $44,646 1,353 $66
District of Columbia $18,066,004 252,986 $155
Delaware $190,367 4,050 $90
Florida $46,172,885 766,290 $95
Georgia $20,132,607 226,595 $141
Hawaii $1,167,943 1,598 $1,339
Iowa $1,512,470 20,058 $133
Idaho $80,459 219 $155
Illinois $2,924,775 37,719 $123
Indiana $11,850,559 261,183 $84
Kansas $1,881,472 4,994 $599
Kentucky $3,640,398 85,025 $52
Louisiana $419,989 3,220 $168
Massachusetts $353,864 61,274 $114
Maryland $45,755,797 296,255 $273
Maine $0 0 $0
Michigan $34,316,590 635,603 $120
Minnesota $65,797 1,508 $70
Missouri $20,912,406 273,246 $116
Mississippi $15,692,881 92,382 $256
Montana $0 0 $0
North Carolina $8,270,684 57,865 $203
North Dakota $0 0 $0
Nebraska $95,032 747 $254
New Hampshire $7,705,129 40,609 $304
New Jersey $2,634,720 116,900 $42
New Mexico $1,179 98 $4
Nevada $6,243,165 29,244 $363
New York $46,661,492 458,400 $149
Ohio $8,684,809 143,202 $89
Oklahoma $2,038,937 26,240 $143
Oregon $164,973 9,601 $26
Pennsylvania $859,761 13,941 $92
Rhode Island $1,954,106 15,651 $150
South Carolina $705,649 99,835 $150
South Dakota $0 0 $0
Tennessee $2,577,775 26,887 $161
Texas $7,847,249 21,015 $497
Utah $201,211 1,172 $287
Virginia $19,217,933 301,325 $102
Vermont $0 0 $0
Washington $464,382 3,328 $246
Wisconsin $742,480 23,502 $53
West Virginia $839,245 7,608 $211
Wyoming $0 0 $0

CMS has a further breakdown by individual, small group and large group markets.

GOP repeal effort could drive up premiums and threaten rebate checks

So what’s the future of the medical loss ratio? If it were up to Congressional Republicans, the provision could see significant changes.

The evidence is in the Senate’s Better Care Reconciliation Act (BCRA), which 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 on July 25.)

Under the BCRA, states would have become responsible for the regulation of insurers’ administrative costs. This is similar to the approach that the Trump Administration is taking with regards to insurers’ network adequacy, and it’s in keeping with the GOP believe that regulatory authority should be concentrated at the state – rather than federal – level.

The CBO estimates 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 be relaxed. “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 of the publication of this post, GOP repeal efforts have stalled (though that status seems to change by the day). Whether the MLR will end up in ACA repeal / replace legislation that returns for a vote is anyone’s guess.

Could the MLR still be ‘neglected?’

For the time being, the MLR rules remain in effect. Timothy Jost, Emeritus Professor at the Washington and Lee University School of Law, noted that it’s possible, however, that the Trump Administration might not be as diligent in gathering MLR data and enforcing the rules as the Obama Administration was.

It’s also possible that the rules in terms of what’s counted as administrative costs could be adjusted under the Trump Administration. The ACA established the general rule that at least 80 percent of premiums (85 percent for large groups) had to be spent on medical and quality-improvement costs, but the specifics were left up to HHS, which finalized the details in late 2010. Notably, broker commissions were included in the administrative expense category, which is something that the Trump Administration could potentially change, assuming the overall federal MLR rules remain in effect.