Insurers accelerate MLR rebates through premium discounts
A NUMBER OF HEALTH INSURERS that are benefiting from the steep drop-off in claims for elective procedures and doctor visits have announced plans to return excess revenue to customers by reducing some members’ premiums in the coming months. The move could reduce the rebates that insurers’ may owe next year under an Affordable Care Act provision.
UCare, a not-for-profit plan in Minneapolis, plans to discount premiums by 20% in July and August for 146,000 commercial and Medicare members, which it hopes will help members struggling financially during the COVID-19 pandemic and encourage them to seek needed care.
Another not-for-profit, Detroit-based Health Alliance Plan, is cutting monthly premiums by 5% for individual and small group plans starting in July and continuing through the end of the year.
Their announcements follow similar commitments made earlier this month from Premera Blue Cross, Priority Health and UnitedHealthcare. UCare and some other insurers are also waiving copayments for primary care and mental health services for certain customers.
Insurers’ willingness to offer premium discounts and other financial relief suggests they expect to profit this year from the widespread reduction in use of healthcare services as medical practices limit non-urgent services and patients practice social distancing.
Large, for-profit insurers already indicated as much when they reaffirmed 2020 earnings guidance; still, they cautioned they could eventually see increases in claims for COVID-19 treatment and pent-up demand for services that were postponed.
The premium discounts are also a practical move. Industry experts expect insurers will owe large rebates to members in 2021 to make up for overpricing health plans in the few years before. Offering premium discounts now is simply a way to speed up delivery of those rebates to a time when members may be really struggling amid the economic slowdown.
Accelerating those rebates, which are required under the medical-loss ratio provision of the ACA, would consequently lower the amount of rebates the insurers pay out in 2021.
“We felt that giving our membership the premium discount now was more important than what might happen in the future, in part to encourage folks to get into the doctor’s office and to stay covered,” said Ghita Worcester, UCare’s senior vice president of public affairs and chief marketing officer.
Even if insurers don’t offer premium discounts now, it’s likely they would be forced to pay back some portion of their excess revenue later. The loss ratio rule requires insurers selling individual and small group plans to spend at least 80% of premium revenue on medical care and quality improvement, while large group plans must spend 85%. The remainder is used for profit and administrative costs. Insurers that don’t meet those minimum ratios must rebate the difference to customers.
Insurers’ loss ratios are calculated based on three years of financial data. They paid out record rebates worth $1.4 billion last year based on how they priced their plans in 2016, 2017 and 2018. The Kaiser Family Foundation estimates insurers will owe almost double that—$2.7 billion—in rebates to be paid out this summer based on 2017, 2018 and 2019. That averages about $340 per member.
The massive reduction in healthcare spending due to COVID-19, coupled with overpricing in other years, could lead to big rebates again in 2021, said David Anderson, a researcher at Duke University’s Margolis Center for Health Policy. One way or another, insurers would have to pay back that cash, he said.
“If they pay it out this summer or fall, when people really need it, instead of holding on to it another year, that’s a good thing to do and it’s easier for insurers that are making those payments because they don’t have to track people down,” Anderson said. ●
“We felt that giving our membership the premium discount now was more important than what might happen in the future, in part to encourage folks to get into the doctor’s office and to stay covered.” Ghita Worcester
UCare’s senior vice president of public affairs and chief marketing officer