Insurers expected to give back $1.3B to consumers because of healthcare law

Insurance companies will pay consumers roughly $1.3 billion in rebates this year because of President Obama’s healthcare law, according to new estimates from the Kaiser Family Foundation.

The healthcare law requires insurers to spend 80 or 85 percent of their premiums on medical costs, leaving the other 15 or 20 percent for overhead and profit. If they fail to meet that threshold — known as the medical loss ratio (MLR) — they have to pay rebates to their customers.

Small businesses are expected to see $377 million in rebates this year, and large employers will get back $541 million, Kaiser said.

Nearly one-third of the people who buy insurance on their own, rather than getting it through an employer, are expected to get a rebate this year. The individual market is generally much more expensive than buying coverage through an employer.

Rebates in the individual market are expected to total $426 million, for an average of $39 per person, according to Kaiser.

The MLR requirement took effect last year in most states. Kaiser’s latest estimates are for rebates consumers would receive this year because of their plans’ premiums last year.

The healthcare law allowed states to seek an adjustment to the MLR rules for their individual markets so that insurers could temporarily spend less than 80 percent of their premiums on medical costs without having to pay rebates.

The Health and Human Services Department approved adjustments in seven states. Both the number of people receiving rebates and the average size of each rebate are smaller in those seven states, Kaiser found.

HHS has also said insurers are scaling back proposed premium increases so they’ll be in compliance with the new MLR rules.

Insurance companies strongly oppose the MLR. They say it doesn’t do anything to control the underlying cost of healthcare services, and that those increases are what drives up premiums.