Health care rule could mean rebates for some consumers

Kaiser Health NewsNovember 22, 2010 

WASHINGTON — Millions of Americans might be eligible for rebates starting in 2012 under regulations released Monday, which detail the health care law's requirement that insurers spend at least 80 percent of their revenues on direct medical care.

The regulations closely follow recommendations that the National Association of Insurance Commissioners sent to the Department of Health and Human Services this fall after months of meetings and debate involving industry and consumer representatives.

The government estimates that 45 percent of people who buy their own health coverage are in plans that currently don't meet the standard. It didn't provide a similar figure for those with employer-based coverage.

If the law were in effect now, however, about 9 million people could be eligible for rebates, either directly, if they buy their own coverage, or through their employers, if they're in job-based coverage.

"This will guarantee that consumers will get the most out of their premium dollars," HHS Secretary Kathleen Sebelius said at a news conference Monday.

The 80 percent standard applies to individual and small group policies. Larger group policies — generally considered to be more than 50 people — must spend at least 85 percent of revenues on care. The rule doesn't apply to employers who self-insure.

There are some exemptions:

  • Employers and insurers that offer "mini-med" policies, which are plans that limit coverage to $250,000 a year or less, get a special way to calculate their medical spending next year: They'll total the amount spent on doctors, hospitals and other medical and quality improvement expenses, then multiply that figure by 2. In effect, that will allow them to meet the 80 percent ratio by spending as little as 40 percent on medical costs. HHS will revisit that provision after 2011.
  • States may apply to have the requirement adjusted if meeting the 80 percent spending requirement would destabilize their individual markets, Sebelius said. Four states — Maine, Iowa, South Carolina and Georgia — already have said they'll seek adjustments.
  • Some small plans won't have to provide rebates, at least for the first year.

During the debate that led to the National Association of Insurance Commissioners' recommendations, insurers pushed for the broadest possible definition of what constitutes medical spending, including the costs of paying claims, signing up doctors to their networks or running customer service call centers. The final recommendations are narrower, which is what consumer groups had urged.

The regulations allow insurers, for example, to include many quality improvement costs along with payments to doctors, nurses, hospitals and other providers in their medical expense calculations, but not the cost of broker commissions.

Consumer advocates were pleased.

"Few Americans understand how much of what they spend on health insurance goes to administration," said Timothy Jost, National Association of Insurance Commissioners consumer representative, who's a professor at Washington and Lee University School of Law in Virginia.

Currently, he said, insurers that cover 20 percent of Americans spend about 30 percent of their revenue on administrative costs, a percentage that will result in rebates unless they reduce those costs.

Insurers, who'd objected strongly to the recommendations in October, toned down their criticism Monday, saying the new rules "take a first step" toward minimizing market disruption for plans sold to individuals. But it remains possible that the rules could affect employer-offered coverage, America's Health Insurance Plans said in a statement.

(Kaiser Health News, www.kaiserhealthnews.org, is an editorially independent news service of the Kaiser Family Foundation, a nonpartisan health care policy organization that isn't affiliated with Kaiser Permanente.)

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