Health Insurers Expected to Rebate More than $1 Billion Under Reform Provision

An early picture of the effects of the requirement, one of the aspects of the health law that drew the most concern from the insurance industry, is emerging from new analyses based on estimates that insurers filed with state regulators.

The nonpartisan Kaiser Family Foundation, which calculated total rebates at $1.3 billion, says that around $426 million will go to people who bought their own health plans; $541 million will go to large employers and $377 million to small businesses.

In a separate analysis based on the same filings, Goldman Sachs analyst Matthew Borsch estimated the total rebates at around $1.2 billion.
Insurers must tell the federal government this June exactly how much the rebates will be, and they are expected to go out by August. People with individual insurance may get rebates in the form of checks or discounts against future premiums. Rebates for group plans are expected to go to the employers, and a share is supposed to be passed through to employees.

The new requirement focuses on a figure called the medical-loss ratio, which represents the share of premium revenue that goes toward medical expenses. Under the law, insurers must spend 80% of premiums from individuals and small businesses, and 85% of those from large employers, on health-care claims and quality-improvement efforts. The rest can go toward other things, including administrative expenses and profits. If an insurer doesn't spend a large enough proportion on the health costs, it must give back the difference to customers.

The provision doesn't apply to coverage from employers that are self-insured, meaning they pay their own health expenses, which includes most big companies.

According to Kaiser's analysis, around 31% of individual policyholders, or around 3.4 million people, are expected to get rebates. The foundation's researchers estimated that the national average will be $127 each on an annualized basis, though the amounts varied widely and a few states had no individual rebates at all. Rebates are calculated separately for each insurer and each line of business, by state.

Among small businesses, the rebates would go to employers covering around 28% of people with such plans, with the national average amount pegged at $76 per person for a full year. For large employers, the total was around 19% of people with such coverage, and $72 per person.

Insurers likely reduced some premiums to avoid the refunds, said Larry Levitt, senior vice president at the Kaiser foundation. Goldman's Mr. Borsch said the rebate totals were lower than he had originally projected, and he attributed the difference to "proactive steps the companies have taken," including scaled-back premiums and targeted refunds to clients.

The Goldman analysis found that this year Aetna  will pay out around $177 million in rebates on eligible premium revenues that totaled $11 billion. UnitedHealth Group Inc. will owe about $307 million on $28.8 billion in eligible premiums, and WellPoint Inc. will pay out around $94 million on $33.2 billion.

The companies already set aside money for the expected rebates over last year, though in some cases their projections may have missed.

In a statement, Aetna said its state filings "show estimated liabilities that are not final and do not account for several factors such as the last 90 daysof our 2011 claims experience." Spokespeople for WellPoint and UnitedHealth declined to comment.

The new estimates don't include all of the rebates that will be paid in California, because the state hasn't received filings from all health plans.

A spokesman for America's Health Insurance Plans said the spending ratio requirement "doesn't do anything to address the actual drivers of health-care costs," particularly the cost of care.

Kathleen Sebelius, U.S. Secretary of Health and Human Services, said in a statement that the rebate estimates show the health-care law "is already strengthening the health-care system for millions of Americans."