Thanks to health reform law insurers are improving value, preparing for rebates

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By Consumers Union on Tuesday, April 17th, 2012

New rules that demand better value from health insurance companies are beginning to change business practices at some of the nation’s largest insurance companies and consumers will soon be due millions in rebates, according to data released early this month.

Enacted as part of the Affordable Care Act, better known as the health reform law or “Obamacare”, new rules say insurers must spend at least 80 percent of premiums on actual medical care for individuals and small-business owners who buy coverage on their own.  If insurers miss the mark, they must rebate policyholders.

Preliminary data released this month shows that many insurers are planning to pay back millions in rebates this summer while some have adjusted their business models to meet the new minimum standard.  Here’s some of what we’ve found so far:

Insurers are estimating millions in rebates this summer:

  • Blue Cross Blue Shield of Arizona, the state’s largest insurer, foresees rebates of $3.2 million to small business customers and $8.7 million to individual policyholders.
  • A WellPoint insurance company in Missouri, Healthy Alliance, estimates that its individual policyholders will see $9.3 million in rebates in addition to small businesses customers who will share almost $20 million in rebates.
  • The small businesses in Florida covered by Blue Cross Blue Shield of Florida can expect an estimated $44.9 million in rebates.
  • Several large national plans are preparing to pay back millions to consumers.  For example, Aetna Life, part of the Aetna insurance giant, estimates that it will owe more than $46 million to its individual market customers.

Insurers are improving efficiency by lowering how much of premiums they spend on administrative costs:

  • Nationally, United Healthcare’s Golden Rule Insurance Company spent more than 35 percent of individual policyholder premiums on administrative costs and profits in 2010.  But due to the new rule they’ve improved that figure to just over 21 percent in 2011.
  • Medical Mutual, a major insurer in Ohio, increased the amount of premiums it spent on medical care from just 65 percent to over 80 percent, allowing the company to avoid paying rebates to its 102,000 individual market customers.
  • Humana in Wisconsin spent about 28 percent of premium dollars from its small business customers on administrative overhead in 2010, but spent just under 17 percent in 2011.

We’re just starting to dig into these preliminary reports of how insurers spent your premium dollars in 2011, but it’s quickly becoming clear that the Affordable Care Act is working to improve value and drive down insurance costs.

Along with the good news in these reports, we’ve found that the 80% standard is playing a role in driving some insurers to lower health insurance rates.  Among them are seven insurers in Nevada who’ve cut rates for their small business customers. And a state insurance official in Wisconsin noted that as of September 2011, at least three companies had already asked for rate decreases.

Insurers must issue final reports of how they spent premiums in 2011 by June 1, 2012 and all rebates must be sent out by August 1, 2012.  Check back here for more information during the coming weeks as we lead up to the June 1 filings.

In the meantime, please take action and tell your members of Congress and state Insurance Commissioner to support the law, and fight attempts to undermine refunds and rate cuts.

 

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