The rebate total is high relative to many past years but is half of the $2 billion in rebates in 2021 and less than half of the $2.5 billion paid in 2020.
Insurers will issue about$1 billion in rebates later this year after exceeding medical loss ratios (MLRs), according to an estimate published today by the Kaiser Family Foundation (KFF).
The rebate total is high relative to past years but not to the $2.5 billion rebated in 2020 and the $2 billion in 2021.
One way to think about rebates is that insurers set premiums too high relative to the health claims they actually ending up paying. The rebate totals in 2020 and 2021 were the highest ever. The reflect the much lower use of healthcare services during the early phase of the COVID-19 pandemic.
The Affordable Care Act set limits on the proportion of premium income that health plans can use to cover administration, marketing and profits; the rest of the money must be used to pay claims and to make quality improvements. In the individual and small group market, the MLR is 80% (80% of premium must go toward claims and quality improvement with the remaining 20% covering administration, marketing and profit). in the large group market, the MLR is 85% (85% of the premium for health claims and quality improvement and 15% for administration, marketing and profit).
According to the KFF experts, most of the rebate total this year will be issued by insurers in the individual market. Their calculations show individual market insurers will rebate $603 million; small group insurers, $275 million; and large group insurers, $168 million. The average rebate per person will be $141 in in the individual market, $155 in the small group market and $78 in the large group market. In the group market, the rebate may be shared between the employer and employees with the split varying with how the premium costs are shared between them.
The KFF experts based their rebate figures on financial data from the Health Coverage Portal, which is maintained by Mark Farrah Associates. The foundation said its 2021 rebate estimate differed by about 6% from the rebates that were eventually paid.
The rebates that insurers pay are not based just on the previous year and its MLR but on three-year average. So, for example, the 2022 rebates are based on expenditures and MLRs for 2021, 2020 and 2019.
According to the KFF experts — Jared Ortaliza, Krutika Amin and Cynthia Cox — insurers in the individual market had higher MLRs in 2021 — 88% , before adjusting for quality improvement and taxes — than they had been in the recent past. “Some insurers experiencing relatively high loss ratios in 2021 nonetheless expect to owe rebates this year because those rebates reflect their more profitable experience in the 2020 and 2019 plan years,” they wrote.
Premiums have been relatively level in the individual market the past several years, wrote Ortaliza, Amin and Cox, but they may go up in 2023 because of the higher MLRs insurers experienced in 2021.