Americans Are Set To Receive $1 Billion In Health Insurance Rebates This Year

It’s often the case that health care costs are only going in one way: up. However, this year millions of Americans will be looking toward receiving cash in reimbursement from their healthcare insurance.

As per the Kaiser Family Foundation (KFF), health insurers are expected to offer rebates of one billion dollars to 8.2 million members of health plans, equal to $128 per person.

The projected benefit for health plan members is due to the Affordable Health Care Act (ACA) law that requires health insurance companies within the individual and small group commercial markets to pay 80percent of their premium earnings on health care costs for their members. This is referred to by the term medical loss (MLR) or the proportion of premiums spent on medical expenses. The same law obliges large group insurers to pay 85% of their premiums on medical claims.

The remaining money after paying for claims could be used for health insurance’s marketing costs, administrative expenses, and profits. However, if the remaining funds exceed the amount they are allowed to pay, insurers must return the extra amount to the customers who paid for the premiums initially.

MLR rebates are based upon the three-year average of costs and premiums. The estimated rebates for 2022 will be determined by insurers’ results from 2019, 2020, and 2021 for policies purchased between 2021 and 2021. The timeframe includes a significant decrease in healthcare utilization in the early stages of the pandemic. People stayed clear of non-urgent healthcare that was not covered by Covid-19.

If people are using fewer services and insurers must pay fewer claims, this results in higher profits for insurance companies. The year 2020 saw health insurance companies’ financial performance improve significantly compared to 2019. This trend has been evident in various health insurance firms such as Cigna, CVS Health, and Humana.

The levels of rebates in 2022 will differ by market segment. For instance, insurers are expected to pay the highest amount to individuals–$603 million, which is $141 for each 4.3 million individuals. For the market for small groups, insurers anticipate distributing 275 million in rebates, equal to 1.8 million individuals receiving one dollar each. Large group insurers expect to offer $168 million, which is $78 per for 2.2 million customers.

These estimates are only preliminary and will be revised later in the year. Final rebates should be made available to consumers before August 1st.

If the current estimates are correct that 2022’s rebates will be greater than the ones issued in 2013-2017, but lower than those of the previous three years. According to KFF, In 2020, record-breaking rebates reached $2.5 billion. In the past year, insurers offered $2.0 billion worth of refunds.

Although it’s exciting as it could be to receive cash back from an insurance company for a new policy, MLR is simply a benefit to a more negative fact: MLR rebates mean that insurance companies have set their rates much too high.

As per Mark Shepard, an assistant director of policy and public affairs at Harvard Kennedy School of Government, the higher cost is likely due to little competitiveness in the commercial insurance markets, despite some improvements.

“There is some entry from the lows of 2018, but it’s not a particularly popular market,” Shepard said. “That can increase the price markups.”

This year, consumers were offered more options and higher quality 2015, with an average of five insurers available for each state. At the top of the list in 2015, customers could select six insurance providers in each state.

Another disadvantage to the MLR rebate policy, Shepard points out, is that it creates incentives for insurance companies to pay more rather than charge less.

Based on a study in the American Economic Journal: Applied Economics, regulations that establish restrictions on insurers’ profits, similar to the MLR rebate rule, induce insurers to increase their medical expenses to cut their profits. The analysis did not find any impact on the cost of premiums. Also, insurance companies did not reduce prices to get rid of rebates.

If a health insurance refund means you’ve paid too much, but there’s nothing you can change. It’s not like you have to do anything to receive your cash. The rebates are processed automatically.

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Robert Scoble
Robert is the assistant managing editor for HC News, overseeing coverage of markets, companies, strategy and business leaders. Originally from Boston, Scoble began his journalism career in 1997 & now resides outside New York.

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