The rebates that will be issued later this year will be larger than those issued in most prior years, the analysis found.
Health insurers are projected to pay about $1.1 billion in Affordable Care Act medical loss ratio rebates this year, a new KFF report finds.
The medical loss ratio (MLR) provision of the ACA 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 individuals and employers that purchased coverage.
The $1.1 billion in estimated total rebates across commercial markets are similar to the $1 billion in total rebates issued in 2022, and the $950 million issued in 2023. Last year, rebates were issued to 1.7 million people with individual coverage and 4.1 million people with employer coverage. In the individual market, the 2023 average rebate per person was $196, while the average rebates per person for the small group market and the large group market were $201 and $104, respectively.
The rebates, to be issued later this year, will be larger than those issued in most prior years, the analysis found, but they’ll fall short of the recent rebate totals of $2.5 billion issued in 2020 and $2 billion issued in 2021, which coincided with the onset of the COVID-19 pandemic.
WHAT’S THE IMPACT?
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 on healthcare claims and quality-improvement efforts.
MLR rebates are based on a three-year average, meaning that rebates issued in 2024 will be calculated using insurers’ financial data in 2021, 2022 and 2023, and will go to people and businesses who bought health coverage in 2023.
In 2023, the average individual market simple loss ratio – meaning there’s no adjustment for quality improvement expenses or taxes, and doesn’t align perfectly with ACA MLR thresholds – was 84%. That shows insurers spent an average of 84% of their premium income in the form of health claims in 2023, according to KFF data.
However, rebates issued in 2024 are based on a three-year average of insurers’ experience in 2021-2023. Consequently, even insurers with high loss ratios in 2023 may expect to owe rebates if they were highly profitable in the prior two years.
In the small and large group markets, 2023 average simple loss ratios were 84% and 88%, respectively. Only fully insured group plans are subject to the ACA MLR rule, while roughly two-thirds of covered workers are in self-funded plans, to which the MLR threshold doesn’t apply.
THE LARGER TREND
KFF cautioned that the rebate amounts are still preliminary. Rebates and notices are mailed out by the end of September, and the federal government will post a summary of the total amount owed by each issuer in each state later in the year.
Insurers in the individual market can either issue rebates in the form of a check or premium credit. For people with employer coverage, the rebate can be shared between the employer and the employee, depending on the way in which they share premium costs.
If the amount of the rebate is exceptionally small – less than $5 for individual rebates and less than $20 for group rebates – insurers are not required to process the rebate, as it may not warrant the administrative burden required to do so, KFF said.
HENRY KOTULA 