Some people may see rebate checks coming their way as a result of health care reform. Here’s why: The Affordable Care Act (ACA) contains a provision called the “Medical Loss Ratio” requirement that requires health insurers (i.e. health insurance companies) in what is called the individual and small-group markets to spend at least 80% of premium dollars they receive on actual medical care (and quality improvements). For large group market plans, the percentage is 85%. As a result, 20% of premiums in the individual and small group markets can go to the insurers’ overhead.
But what happens under the law if the insurers fail to comply with the required Medical Loss Ratios and only spend, say, 70% of premium dollars on actual health care and 30% goes to overhead (salaries, marketing, etc.)? The insurers have to pay rebates to policyholders.
Based on a recent analysis conducted by the Henry J. Kaiser Family Foundation, rebates should be on their way. Kaiser estimates that in the individual market, 31% of consumers will receive rebates, with 28% of employers in the small group market receiving rebates. Admittedly, these rebates on an individual basis will not be large, but in the aggregate the estimated totals are impressive - $426 million in the individual market and $377 million in the small group market.
Will this make insurers more efficient in their operations? Do tax policies and penalties change behavior? Often the answer is yes.