Health Insurance

The Basics

First of all, in order to be eligible for a rebate you have to be enrolled in an individual, small group, or large group private health insurance plan. Talk to your insurance provider or your employer’s HR department in order to determine what kind of plan you have.

Customers are given refunds when their private insurance company spends too much money on average on overhead and profits and not enough money paying medical bills. If you have a small group or individual plan the company can only spend 20 percent of premiums on administrative expenses. If you have a large group plan, the ratio is even less, with employers only allowed to spend 15 percent of premiums on administrative overhead.

In six states, (North Carolina, New Hampshire, Nevada, Maine, Georgia, Kentucky, and Iowa) insurers are allowed to meet a slightly lower medical loss ratio in order to keep from destabilizing those insurance markets.

When did this new law go into effect?

This new requirement was created by the Affordable Care Act (ACA), the new health care law. This new rule took effect in January 2011 so this is the first year that rebates are being paid. Rebates paid this summer are based on health insurance you had in 2011. Although insurance companies may have spent more than 20% of premiums on overhead in years prior to 2011, they do not owe refunds for those years.

What about Medicare?

Traditional Medicare parts A & B operate very efficiently spending just 3 percent on overhead, therefore Medicare is not subject to the new refund rule.

Medicare supplemental plans (AKA Medigap) must meet a medical loss ratio of 65 percent for the individual market and 75 percent for the group market. These plans are required to give rebates as well, but in recent years Medigap plans have spent over 80% of premiums on medical care on average.

Beginning in 2014, all Medicare Advantage plans will be required to maintain an MLR of at least 85%. Plans that do not maintain at least an 85% MLR will be required to refund the federal government for wasting tax-payer funds. Medicare Advantage plans that miss the requirement for three or more consecutive years must stop accepting new enrollees. Plans that fail to meet the requirement for five years will no longer be allowed to operate.

Stand-alone Medicare Part D plans (those not included as part of a Medicare Advantage plan) are not subject to a medical loss ratio requirement.

What about other public programs?

Some states have medical loss ratio requirements for Medicaid & Children’s Health Insurance Program (CHIP) when the state uses an insurance company to serve Medicaid enrollees. More information is available here.

Beneficiaries of the Veteran’s Affairs health care system and TRICARE will not receive refunds from the new requirement.


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