Straight talk on health care reform: Coloradans to share in rebates as ACA's medical loss ratios kick in
Consumers and businesses nationwide will receive an estimated $1.3 billion in rebates in August from health insurance companies that spent more on administration, overhead and profits than allowed under the Affordable Care Act, according to the Kaiser Family Foundation.
In Colorado, individuals and businesses will receive almost $26 million. Insurance companies will send rebates to 511,684 enrollees, for an average of $54.58 for each enrollee in the individual market, $82.62 in the small-group market and $47.84 in the large-group market.
The rebates are thanks to a provision of the Affordable Care Act designed to ensure that insurance companies spend the lion's share of each premium dollar on health care, with a smaller amount going to administration and other costs.
The split between health care spending and administrative costs is called the medical loss ratio (MLR). Before the Affordable Care Act, there was no national standard.
Now, insurance carriers are required to spend at least 85 cents on medical care for each dollar charged to consumers in the large-group insurance market. That leaves 15 cents to cover profit, overhead, marketing and other costs. (In the small-group market, the split is 80-20.)
The MLR rule started in 2011, so this year's rebates come from insurance companies that did not meet the targets last year.
For more explanation on medical loss ratios, see our previous Straight Talk email (Medical loss ratio has potential to bend the cost curve on premiums).
A report by the Kaiser Family Foundation says that, while the rebates are a tangible measure of the benefits of the Affordable Care Act, they do not represent the "full impact" of MLR provision. The report says:
"The presence of these thresholds and the corresponding rebate requirement have provided an incentive for insurers to seek lower premium increases than they would have otherwise, and in some cases premiums have even decreased. This 'sentinel' effect on premiums has likely produced more savings for consumers and employers than the rebates themselves. The new rate review procedures required under the ACA – where states and the federal government review rate increases exceeding 10% – also may have encouraged insurers to moderate their premium requests. While these provisions of the ACA are not likely to solve the problem of rising health insurance premiums or do much to restrain underlying health care costs over the longer term, they can help to ensure that consumers and businesses get greater value for their premium dollar."