The Affordable Care Act's medical loss ratio has delivered nearly $4 billion in premium refunds to American consumers since 2012.

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? Nearly $4 billion refunded to consumers over the last seven years.

Rebates in 2018 were the highest they’d been since 2012, and 2019 rebates are expected to hit an all-time high

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) a provision – sponsored by Minnesota’s former Senator, 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 2018, insurers were required to pay nearly $707 million in rebates to nearly 6 million consumers. That was based on insurer revenue and spending for 2015-2017, and it was the highest total rebate amount since the first MLR rebate checks were sent to consumers in 2012.

And although official data won’t be released until the fall, the expectation is that rebates issued in 2019 are going to be the largest they’ve ever been. A Kaiser Family Foundation analysis projects that insurers could end up having to rebate $1.4 billion in the fall of 2019, with $800 million of that going to individual market enrollees (the highest total rebates to-date were issued in 2012, when insurers rebated $1.1 billion to consumers). Although insurers, especially in the individual market, struggled to right-size their premiums in the early years of ACA implementation, their profitability had turned a corner by 2016 and grew considerably in 2017 and 2018 as premiums rose sharply. So although the specifics will vary across states and insurers, keep an eye out for significant rebates in the fall of 2019.

For now, total rebates over seven years (2012 through 2018) stand at nearly $4 billion. From 2013 through 2015, the highest total rebate amount was $504 million in 2013. Total rebate amounts were less than half a billion each year since then, before jumping much higher in 2018 — and as noted above, they’re expected to be even larger in 2019.

That makes sense when we consider the scope of the individual market rate increases that insurers implemented for 2017 and the fact that many insurers started to turn a profit in the individual market in 2017 after losing money in that market in the early years of ACA implementation. (About 19 percent of the total 2018 rebates were for individual market coverage, and average rebates in the individual market were larger than average rebates in the large and small group markets; for 2019, the projection is that more than half of the total rebates could come from the individual market.)

In 2018, the largest average rebates were in Minnesota, where more than 41,000 consumers received average rebates of $479 each. Average rebates in Hawaii were $384, but only 818 consumers in Hawaii were owed a rebate. In DC, average rebates were owed to more than 93,000 consumers and averaged $285 each. Nationwide, the average rebate check was $119.

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.

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, profits, CEO salaries and other administrative expenses. 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 to consumers each fall.

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 6 million people received rebates in 2018; that’s less than 2 percent of the population.)

Rebates are based on a 3-year average MLR

The rebates that are sent out each fall are based on the average MLR for the prior three years. The rebates that were sent out in 2018 were based on each carrier’s average MLR for 2015 to 2017. The rebates that will be sent in the fall of 2019 will be based on average MLR for 2016-2018, and so forth.

2018 was the seventh year of payouts through the 80/20 rule. Rebates were highest in 2012, as that was the first year that rebates were sent to consumers and insurers were still fine-tuning their revenues and expenses to comply with the ACA’s new rules.

In 2018, rebates were lower than they had been in 2012, but higher than they had been during any year since then. And while the number of states where no rebates are necessary at all had been steadily rising for the last few years, reaching 11 in 2017 (an indication that more insurers were right-sizing their premiums), it dropped to seven in 2018. Again, this all has to be considered in light of the fact that average premiums in the individual insurance market increased by 25 percent in 2017 as insurers attempted to become profitable in the individual market.

Most people don’t get a rebate check, because most insurers are spending the majority of premiums on medical costs

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 2017 (for plan years 2014-2016), the average individual market MLR was 92.9 percent and the average small group MLR was 86.1 percent (both well above the 80 percent minimum requirement).

In the large-group market, the average MLR was 90.3 percent, also well above the 85 percent minimum requirement for that market segment. For all three market segments, the average MLR reported for 2017 was the highest it had ever been.

HHS also reported that the vast majority of insurers are enrolled in plans that are meeting the MLR requirements. For the MLR reporting in 2017 (based on 2014-2016 MLR numbers), 95 percent of individual market enrollees were in plans that met the MLR rules – so only 5 percent of individual market enrollees ended up getting rebate checks in 2017.

The percentage of individual-market enrollees in plans that met the MLR rules was the highest it had ever been. In 2011, just 82.8 percent of individual-market enrollees had been on plans that spent at least 80 percent of premiums on medical care and quality improvements. Clearly, insurers have gotten better at this over time.

But loss ratios have dropped as insurers regained profitability in the individual market. Kaiser Family Foundation reports that for the first half of 2018, the average individual-market loss ratio was just 69 percent. That’s only for the individual market, and it’s only the first half of the year — loss ratios tend to increase as the year goes on, because claims tend to increase after people meet their annual deductibles. But health insurance premiums in the individual market increased sharply in 2017 and again in 2018, allowing insurers to recover from the first few unprofitable years and possibly over-correct.

In short, it was no surprise that MLR rebates were larger in 2018 (for plan years 2015-2017) than they had been in prior years, and it’s widely expected that they’ll be substantial in 2019 as well, based on revenue and losses for 2016-2018. Premiums in the individual market only increased slightly for 2019, despite some significant upheaval in the market (elimination of the individual mandate penalty, along with the expansion of short-term plans and association health plans).

That’s an indication that premiums were certainly adequate in 2018, and possibly too high in some cases (the expectation is that without the aforementioned market upheaval, average rates would have decreased for 2019).

Total rebate amounts so far have been:

In 2018, nearly 6 million rebated consumers received rebates that averaged $119. (The average was $137 in the individual market, $116 in the small-group market, and $114 in the large-group market.)

The highest average (per household) rebates among families that received them in 2018 were in Minnesota, where average rebates were $479 – about four times as much as the national average. But Minnesota was among the states where there were no MLR rebates at all in 2017, illustrating how much the market can change from one year to another based on premiums and total claims.

In seven states (down from 11 in 2017, but up from six the year before, and just four the year before that), there were no MLR rebates necessary in 2018, because all of the insurers met the MLR requirements: Alaska, Maine, Rhode Island, South Dakota, Vermont, Washington, and Wyoming.

Maine, South Dakota, Vermont, and Wyoming have had no MLR rebates for three years in a row (2016, 2017, and 2018), because all insurers in those states have met the MLR requirements each of those years. But it’s worth noting that Wyoming had the highest average MLR rebates in 2015, and Hawaii, which had no rebates in 2017, had the highest average rebates in 2016 and the second-highest average rebates in 2018. In small markets like Wyoming and Hawaii, a few expensive claims can have a very significant impact on MLR numbers.

So although nobody received a rebate check in seven states in 2018, 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 2018, as had been the case in prior years.

ACA’s 2017 medical loss ratio rebates
State Total Rebates Consumers Benefiting Average per Family
Alaska $0 0 $0
Alabama $206,196 5,061 $41
Arkansas $1,944,299 12,870 $151
Arizona $27,576,292 157,020 $176
California $97,386,263 919,608 $106
Colorado $7,475,523 70,758 $106
Connecticut $48,929 1,154 $423
District of Columbia $26,601,653 93,420 $285
Delaware $6,551,746 37,324 $176
Florida $86,231,898 679,522 $127
Georgia $29,380,080 403,707 $73
Hawaii $314,241 818 $384
Iowa $2,468,147 17,473 $141
Idaho $64,430 2,021 $32
Illinois $14,554,527 118,385 $123
Indiana $1,499,908 74,991 $20
Kansas $3,695,019 23,526 $157
Kentucky $26,253 923 $28
Louisiana $314,880 61,158 $5
Massachusetts $31,895,756 208,749 $153
Maryland $75,754,059 552,175 $137
Maine $0 0 $0
Michigan $55,651,722 392,288 $142
Minnesota $19,659,847 41,034 $479
Missouri $45,538,433 298,071 $153
Mississippi $10,466,683 91,084 $115
Montana $116,211 1,102 $105
North Carolina $4,355,031 112,738 $39
North Dakota $64,550 794 $81
Nebraska $69,737 1,665 $42
New Hampshire $8,064,209 34,995 $230
New Jersey $14,368,862 94,341 $152
New Mexico $4,513,998 32,498 $139
Nevada $6,451,083 43,778 $147
New York $25,961,536 445,849 $58
Ohio $4,706,404 26,186 $180
Oklahoma $2,434,273 33,380 $73
Oregon $96,757 636 $152
Pennsylvania $30,734,528 416,910 $74
Rhode Island $0 0 $0
South Carolina $453,504 41,437 $11
South Dakota $0 0 $0
Tennessee $10,634,459 100,638 $106
Texas $7,813,406 54,851 $142
Utah $3,722,184 27,957 $133
Virginia $35,342,998 210,094 $168
Vermont $0 0 $0
Washington $0 0 $0
Wisconsin $317,325 10,671 $30
West Virginia $1,207,286 6,840 $177
Wyoming $0 0 $0
American Samoa N/A N/A N/A
Guam N/A N/A N/A
Northern Mariana Islands N/A N/A N/A
Puerto Rico N/A N/A N/A
Virgin Islands N/A N/A N/A

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

GOP tried unsuccessfully to repeal the federal MLR rules in 2017

While the MLR provision has obvious appeal to consumers, it isn’t universally loved – 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 the regulation of insurers’ administrative costs. This is similar to the approach that the Trump Administration has taken with regards to insurers’ network adequacy, 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. “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.

GOP efforts to repeal the ACA in 2017 were not successful, though, so insurers in every state still have to spend the majority of your premium dollars 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 dozens of opinions and educational pieces about the Affordable Care Act for Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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