2013
Insurance companies that do not spend at least 80% of premium on health care claims must refund the difference to customers. Once again HHS is shouting about the average $100 that will be sent to many Americans.
Consider that premiums are set now for claims to be incurred next year, you can see its a bit of a guessing game. While a reasonable estimate can be made, no one can know the actual amount to be spent more than 18 months in the future. If the insurer is wrong, claims could well exceed 80% of premiums. Of course, in that case no one expects the insurer to ask customers to send a check for the difference even if the bad year’s experience results in an overall loss for the insurer.
Rather, bad experience in one year will be recovered in the premiums necessary for the following year. This years rebates are $50 less than last year which could mean worse than expected claims experience or a better guess when premiums were established.
In any case, setting premiums is a difficult task (subject to more and more state and federal oversight) and that 80/20 ratio is not, as HHS says, insurance companies “spending more of their premium dollars directly toward patient care and quality, and not red tape and bonuses.”
The Affordable Care Act requires that if an insurer did not spend enough premium dollars on patient care and quality improvement, rebates will be paid in one of the following ways:
a rebate check in the mail;
a lump-sum reimbursement to the same account that they used to pay the premium if by credit card or debit card;
a reduction in their future premiums; or
their employer providing one of the above, or applying the rebate in another manner that benefits its employees, such as more generous benefits.
All of the above, especially the option to reduce premiums or add more generous benefits, can be counterproductive and may well lead to higher premiums in subsequent years.
QUINNSCOMMENTARY 
Of course, HHS failed to take into account the rate increases in plans that had experience in excess of 80 or 85 percent. So the insurance company has two plans, one pays a rebate, the other has a loss ratio of say 95 percent. Guess which option will see a renewal at trend plus 10 percent … To cover the cost of the rebates. That is, expect to see adjustments in rates for not only those that had loss ratios low enough to trigger a rebate, but also the plans with loss ratios greater than 80 or 85 percent. It won’t be the insurance company shouldering the cost for the rebate, but other policyholders… And we have seen how HHS takes credit for this new form of cost shifting… As if there were real savings.
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Hi Dick. Not to be a nit picker but should’n the figure in the first sentence be 80% for claims? Also curious about your perspective as to how this rebate provision benefits employees in self insured plans? Seems like the provision would benefit participants in future plan costs as the claims used for projection would be lower? Future employee contributions would therefore be lowered as well?
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You are right, I screwed up. Thanks. I don’t think this affects self-insured plans because ultimately claims are claims and in those plans losses or gains are immediately recognized in the following year.
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YOU screwed up ????
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