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Health insurers will have to pay roughly $1.1 billion in rebates this fall, thanks in part to decreased healthcare utilization as a result of the COVID-19 pandemic, according to a new analysis from the Kaiser Family Foundation.
The high rebated amount stems from the Medical Loss Ratio (MLR) provision of the Affordable Care Act (ACA),Ìýwhich limits the amount of premium income that insurers can keep for administration, marketing and profits. Insurers that fail to meet the applicable MLR threshold are required to pay back excess profits or margins in the form of rebates to their enrollees.
In the individual and small group markets, insurers are required to spend at least 80% of their premium income on healthcare claims and quality improvement efforts, leaving the remaining 20% for administration, marketing expenses and profit. The MLR threshold is higher for large group insurers, which have to spend at least 85% of their premium income.
WHAT'S THE IMPACT?
The $1.1 billion in estimated total rebates across all commercial markets is close to the flat $1 billion in rebates issued last year. In 2022, rebates were issued to 2.4 million people with individual coverage and 3.8 million people with employer coverage, though rebates may be shared between employers and employees.
In the individual market, the 2022 average rebate per person was $205, while the average rebates per person for the small group market and the large group market were $169 and $110, respectively, though enrollees could only receive a portion of it.Ìý
Though the $1.1 billion in rebates this year is higher than average, it still falls short of the record rebates that were issued in 2020 and 2021, which totaled $2.5 billion and $2 billion, respectively.
The effects of the pandemic are still seen, given that this year's rebates are influenced by years 2020 and 2021. In 2020, factors such as the cancellation of elective care drove down health spending and utilization, but since insurers had already set their 2020 premiums ahead of the pandemic, many turned out to be overpriced relative to the amount of care their enrollees were using. Some insurers offered premium holidays, and many temporarily waived certain out-of-pocket costs, which had a downward effect on their rebates.
THE LARGER TREND
According to KFF, another year of higher loss ratios in the individual market might foreshadow further premium increases in 2024, as some insurers will aim for lower loss ratios to regain higher margins.
In recent years, insurers in all markets had experienced a great deal of uncertainty in setting premiums during the pandemic, KFF said. Looking ahead to 2024, some of that uncertainty may continue, specifically relating to pent-up demand or the health effects of missed and delayed care.
Additional uncertainty in premium setting may come from the Medicaid continuous coverage unwinding, as millions of people are expected to lose Medicaid coverage in the coming months and may make the transition to other sources of insurance. Increases in provider wages and other costs due to inflation could lead to higher premiums. In the 2023 rate filings, Marketplace insurer actuaries cited increase in prices and utilization as drivers of the premium increases.
Email the writer:ÌýJeff.Lagasse@himssmedia.com