Health insurance companies are projected to owe rebates to almost 8 million people this year. Are you one of them? According to the Kaiser Family Foundation, 7.9 million policyholders will receive some money back from an estimated $2.7 billion in premium rebates. This year’s rebate for those with individual policies or who participated in small or large group plans is twice what it was last year, but it is unclear whether the amount will continue to rise.
Why The Rebates?
Insurance companies that sell individual or group policies are required by law to spend a certain percentage of the premiums they collect on healthcare costs, as opposed to on their own administrative costs. This “medical loss ratio” is usually 80/20, meaning insurance companies are allowed to put only 20% of premiums paid by enrollees towards their own marketing, administration, and profits. The rest has to go towards medical costs and quality improvements. If insurance companies do not meet this standard, then they must give a rebate to their policyholders.
How Much Will The Rebate Be?
Each year, the medical loss ratio rebate is calculated based on a three-year average of insurance companies’ financial data. The rebates this year are based on data collected from 2017, 2018, and 2019. Insurance companies who were not in compliance with the 80/20 rule during these years will either send a check to policyholders or deduct a rebate from premiums. The average rebate for 2019 was $208, depending on the state and the insurance company.
So will rebates remain the same for next year or will they be affected by the coronavirus pandemic? Right now, it’s unclear, because it’s unclear how the health crisis will end up affecting the price of insurance premiums. According to Karen Pollitz, a senior fellow with the Kaiser Family Foundation, “Insurance companies aren’t having a bad year, profit-wise. While they’ve paid out for claims related to treatment of coronavirus patients, they’ve paid far less than projected on claims related to elective medical procedures.”
Pollitz suggested that early estimates by insurers have been all over the board as to how much monthly 2021 premiums will cost. So far, insurers have changed their cost-sharing structures in order to reduce the amount that policyholders will have to pay out-of-pocket. “The thought was that people who are struggling during the economic crisis would appreciate this relief and help some to maintain coverage they might not otherwise be able to afford,” Pollitz said.
It is estimated that next year there will be an even bigger rebate due to the pandemic, but “if insurers do reduce their premiums now, then the medical loss ratio looks better,” meaning that there is still a chance that the rebate will be smaller next year.
