Rebates on the way
Insurers didn’t meet 80-20 standard: Sebelius
On a morning when nearly everyone with an interest in healthcare anxiously awaited the U.S. Supreme Court verdict on health reform, HHS Secretary Kathleen Sebelius was preparing for a call with reporters to credit the law for returning $1.1 billion in rebates to businesses and consumers.
The rebates stemmed from the health law’s 80/20 provision—or medical-loss ratio standard—which requires health insurers to spend at least 80% of what they earn from premiums on patient care and related quality improvements. (The minimum is 85% for large group plans.) No more than 20% can be used for administrative or marketing expenses.
Insurers that fail to meet that ratio must return the difference to policyholders no later than Aug. 1. They also must notify beneficiaries of whether they met the ratio, and their performance will be posted on a new consumer website, HealthCare.gov.
“The 80/20 rule is another reminder of what the health reform act is all about,” Sebelius said on the call. “We’re going to continue to implement the Affordable Care Act so that Americans can get the healthcare and health coverage they deserve.”
About 12.8 million beneficiaries could receive a rebate, either directly or through their employers, according to HHS.
The agency also drew attention last week to another popular provision of the law, announcing that 3.1 million young adults have gained health insurance because of health reform, and nearly 75% of 19- to 25-
year-olds now have coverage.
Yet—unlike extended coverage for dependents—the MLR rule has not been one of the healthcare reform provisions that insurers have pledged to protect (June 18, p. 10). It’s therefore unclear what would happen to the rebates if the government gets an adverse decision.
“The MLR requirement does nothing to address the real drivers of premium increases and will not make healthcare coverage more affordable,” Robert Zirkelbach, a spokesman for trade group America’s Health Insurance Plans, said in an e-mailed statement. “The unintended consequences of imposing an arbitrary federal cap on health plan administrative costs are likely to outweigh any benefit these rebates will provide.”
He added that premium increases attributed to costs added by the health law are likely to exceed whatever rebates are returned.
Leah Stewart, a healthcare attorney at Beatty Bangle Strama, noted that the individual mandate has been packaged only with the guaranteed issue and community rating provisions—which prevent insurers from taking health history into account when writing policies. Therefore, if the mandate is struck down while the rest of the law is left intact, there may be litigation over what insurers can be forced to do, she said.
In addition, since many states have their own MLR requirements, insurers would need to determine whether they would need to pay rebates under certain state laws. “It devolves into a state-by-state inquiry,” Stewart said.
Elliott Kroll, who focuses on insurance litigation at law firm Arent Fox, noted that a law without the individual mandate would be “pernicious and ultimately harmful to the American consumer.” Yet, he also noted that the court could delay the effective date of its decision, which would mean the rebates might still be mailed as planned.
There’s also the matter of appearances. “Rebates aren’t guaranteed, although it is my intuition that insurers will still mail them out this year,” Stewart said. “I think it is something that has a lot of populist appeal.”