Health rebates en route
Connecticut small businesses and individuals are in line for rebates triggered after some insurance carriers exceeded allowable administrative spending under federal health reform.
As of August, insurance companies will be required to pay rebates to small businesses and individuals if they did not spend at least 80 percent of their premium income on health care claims and quality improvement activities, with carriers allowed to reserve the rest for administration, marketing and profits.
The medical loss ratio threshold is higher for large group plans, which must spend at least 85 percent of premium income on claims and quality improvement, leaving 15 percent or less for administrative expenses.
Health insurance carriers could provide more than $6.3 million this year in rebates to Connecticut residents on individual health plans, according to a new study from the Kaiser Family Foundation, or more than $135 per member.
Small employers are set to receive more than $1.8 million, just short of $50 for each person on their health plans.
The Kaiser Family Foundation bases its rebate estimates on insurer filings to the National Association of Insurance Commissioners, drawn from a database maintained by Mark Farrah Associates.
Rebates could total $1.3 billion this year nationally, according to the foundation, including $426 million in the individual market, $377 million in the small group market and $541 million for large employers.
If not particularly large, the rebates are among the more tangible effects of federal health reform from the vantage point of consumers until the major provisions of the Affordable Care Act go into effect in 2014, depending on the outcome of a U.S. Supreme Court challenge to the law.
Insurers started reserving funds last year to pay the rebates, despite uncertainty over how the program would function. UnitedHealth Group Inc., a major Connecticut carrier via its Oxford Health division, said it recorded a $130 million favorable “true-up” to its original estimates based on a better record on the medical loss ratio front.
“There are a host of factors that obviously influenced that,” said Dan Schumacher, CFO of UnitedHealth, in a mid-April conference call. “We”™re measuring it across 350 intersections; and so there are changes in estimates. But also importantly, there were changes to state and federal guidelines that it came down in the first quarter that influenced the rebate result for 2011.”
Hartford-based Aetna Inc. also has been making course corrections as it absorbs the implications of the new rules.
“Our rebates will probably be lower than they were (last year), since in 2011 our products were priced into the market before the rules were actually known,” said Joseph Zubretsky, CFO of Aetna Inc., in an April conference call. “It”™s really the achievement of your MBR (medical benefit ratio). You”™re either going to put the money in the price of your product and get it on the street immediately, or you”™re going to pay in a rebate. So I would focus people on the quality of our MBR, which at 79.9 percent was an excellent result for the quarter.”
That was an improvement from the 77 percent MBR rate Aetna reported a year ago.
“Clearly we have better insights now having a year”™s worth of experience,” Zubretsky said.