Health insurance refunds – your questions answered
By Consumers Union on Wednesday, June 20th, 2012
Recently, we posted our map listing insurance companies that may owe refunds to customers because they wasted too much money on overhead according to the new healthcare law. But how do you know if you qualify for a refund? What types of plans get what refunds? And what if you are on public benefits? Read on to get the facts about the new rebates.
First of all, in order to be eligible for a rebate you have to be enrolled in an individual, small group, or large group private health insurance plan. Talk to your insurance provider or your employer’s HR department in order to determine what kind of plan you have.
Customers are given refunds when their private insurance company spends too much money on average on overhead and profits and not enough money paying medical bills. If you have a small group or individual plan the company can only spend 20 percent of premiums on administrative expenses. If you have a large group plan, the ratio is even less, with employers only allowed to spend 15 percent of premiums on administrative overhead.
In six states, (North Carolina, New Hampshire, Nevada, Maine, Georgia, Kentucky, and Iowa) insurers are allowed to meet a slightly lower medical loss ratio in order to keep from destabilizing those insurance markets.
When did this new law go into effect?
This new requirement was created by the Affordable Care Act (ACA), the new healthcare law. This new rule took effect in January 2011 so this is the first year that rebates are being paid. Rebates paid this summer are based on health insurance you had in 2011. Although insurance companies may have spent more than 20% of premiums on overhead in years prior to 2011, they do not owe refunds for those years.
What about Medicare?
Traditional Medicare parts A & B operate very efficiently spending just 3 percent on overhead, therefore Medicare is not subject to the new refund rule.
Medicare supplemental plans (AKA Medigap) must meet a medical loss ratio of 65 percent for the individual market and 75 percent for the group market. These plans are required to give rebates as well, but in recent years Medigap plans have spent over 80% of premiums on medical care on average.
Beginning in 2014, all Medicare Advantage plans will be required to maintain an MLR of at least 85%. Plans that do not maintain at least an 85% MLR will be required to refund the federal government for wasting tax-payer funds. Medicare Advantage plans that miss the requirement for three or more consecutive years must stop accepting new enrollees. Plans that fail to meet the requirement for five years will no longer be allowed to operate.
Stand-alone Medicare Part D plans (those not included as part of a Medicare Advantage plan) are not subject to a medical loss ratio requirement.
What about other public programs?
Some states have medical loss ratio requirements for Medicaid & Children’s Health Insurance Program (CHIP) when the state uses an insurance company to serve Medicaid enrollees. More information is available here.
Beneficiaries of the Veteran’s Affairs healthcare system and TRICARE will not receive refunds from the new requirement.
When and how will rebates be paid?
Insurance can provide rebates to customers either in the form of a refund check due by August 1 or a reduction in the first monthly premium payment following August 1. You’re rebate will be based on your monthly premium. In most cases, employers must share refunds with their employees based on the percentage of the total premium that the employee paid. By August 1, insurers must provide a notice to customers if they are owed a rebate. Refund checks may accompany the notice or be sent separately.
I work for a very large employer, does this matter?
Many large employers are “self-insured” meaning your employer pays for your healthcare costs rather than having you sign up with a health insurance provider. It’s difficult to tell if you’re in a self-insured plan because your employer probably still uses an insurance company to administer claims and receive access to discounted doctor rates so you probably still have an insurance card. Check with your HR department to find out if your plan is self-insured. These plans aren’t subject to the medical loss ratio requirement and are not eligible for refunds, however, most self-insured plans operate with as little overhead as possible to keep costs down for employers and employees.
Are these the final rebate amounts?
Consumers Union has updated the totals on the map and estimates per insurance company based on data reported by insurance companies to the U.S. Health & Human Services Department (HHS) by June 1. An earlier version of our map and list of rebating insurers used estimates reported by insurance companies to the National Association of Insurance Commissioners by April 1. Current listed rebate amounts and rebating insurers are based on information found here & here. These updated amounts vary from the earlier estimates reported by insurers. HHS characterizes the current list of insures owing rebates as “preliminary” based on information “as of June 3, 2012.”
Further, on July 13, 2012, HHS added new information to their website showing the percentage of premiums each insurer spent on actual medical care versus overhead. You can access this information by going here, entering your state and insurer, selecting MLR, and clicking on your insurance company. Consumers Union will continue to update our data as new information becomes available.
I’m not eligible for a refund, is there anything available to help me?
Starting in 2014, the federal government will offer tax credits for middle and low-income Americans to purchase health insurance through state health “exchanges.” These exchanges will force insurers to compete for your business on a level playing field based on cost and quality. Plus, in 2014 you can’t be denied or charged more because of your health status so you can shop around for the best deal.