Health insurers are set to refund a record amount to consumers who purchased health plans on government-run marketplaces or in the private market during the last few years.
Rebates for individuals who bought their health plans from Affordable Care Act marketplaces will average $420 apiece, according to a report by the Kaiser Family Foundation. In total, health insurers are expected to refund $1.97 billion to 4.7 million people who purchased coverage on exchanges around the country.
Not everybody who has an individual market plan will see a refund. Only policyholders whose insurer spent less than 80% of their premiums on claims will have to be paid back.
How the rebates will be paid
Insurers can pay out the rebates by issuing a premium credit to people who are insured by the same company as they were in 2019 (for those who are currently enrolled with the same insurer as in 2019), or as a lump-sum payment. Last year, most insurers paid out rebates by check as a lump sum.
Rebates that will be issued in 2020 are based on the insurer’s financial performance in 2017, 2018 and 2019.
The ACA requires that insurers refund policyholders under the law’s medical loss ratio provision, which requires them to spend at least 80% of their premium income (85% for large group plans) on claims and quality improvements over the previous three years. Insurers that do not meet that requirement must refund the difference as rebates.
The goal is to have insurers spending the majority of your premium dollars on medical claims so that rebates aren’t necessary.
But because insurers set their premiums a year in advance, they usually cannot predict how many policyholders they will have or how much they will pay out for claims. The rebates serve as a backstop, ensuring that even if premiums are ultimately set too high in a given year, policyholders will be paid for essentially being overcharged.
The majority of insureds do not receive a rebate check, as most insurers’ administrative costs are less than the allowable amount.
The high rebate estimates come as insurers are working on submissions to regulators for proposed premiums for 2021 in the midst of uncertainty about how the coronavirus pandemic will affect health care costs.
But even if they lose money in 2020, insurers could still owe money to consumers in 2021 because the refunds are based on the previous three years, and health insurers made high profits in the ACA markets in 2018 and 2019.