Breaking News: Insurers Set to Issue $1.1 Billion in Rebates to Americans Excluded From Health Care Coverage

The ACA’s Medical Loss Ratio (MLR) limits insurers’ premium income for administration, marketing, and profits. Insurers who fail to reach the MLR standard must repay enrollees’ excess profits or margins.

In the individual and small group markets, insurers must spend 80% of premium money on healthcare claims and quality improvement, leaving 20% for administration, marketing, and profit.

Large group insurers must pay 80% of excellent income on health care claims and quality improvement, raising the MLR threshold. MLR refunds are based on a 3-year average, thus 2023 rebates will go to consumers and firms who acquired health coverage in 2022.

Americans will get $1.1 B in rebates from health insurance companies this year cuz of a provision I wrote in the ACA. Companies must spend at least 80% of your premiums on actual health care & not on admin., marketing, & profits – 85% for large group policies. And rebate the…

— Al Franken (@alfranken) May 17, 2023

Using early data supplied by insurers to state regulators and collated by Mark Farrah Associates, insurers predict they will award $1.1 billion in MLR rebates across all commercial markets in 2023. Rebate data will be released later this year. Some insurers have not submitted 2023 rebate projections.

The estimated total refunds across all commercial markets 2023 ($1.1 billion) are similar to 2022 ($1.0 billion). In 2022, 2.4 million individuals and 3.8 million employers received rebates, which may be shared.

The 2022 average rebate per person in the individual market was $205, while the small group and large group markets had $169 and $110, respectively (though enrollees may receive only a portion of this as rebates may be shared between the employer and employee or used to offset premiums for the following year).

The expected $1.1 billion in reimbursements to be issued later this year will be bigger than most preceding years, but well behind the recent record-high payout totals of $2.5 billion in 2020 and $2.0 billion in 2021, which corresponded with the pandemic. 

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The average individual market simple loss ratio in 2022 was 86%, meaning these insurers spent 86% of their premium income on health claims. However, 2023 rebates are based on a 3-year average of insurers’ 2020-2022 experience. Some insurers with high loss rates in 2022 expect to owe refunds because their 2020 plan year was more profitable.

Rebates this year include the 2020 and 2021 pandemic experience. In 2020, numerous things reduced health spending and utilization. Hospitals and providers canceled elective care early in the pandemic and during COVID-19 case spikes to free up hospital capacity, preserve resources, and reduce virus propagation.

Due to social distancing worries, several consumers skipped routine care in 2020. Before the pandemic, insurers established their 2020 premiums, which were too high for the treatment their enrollees used. Many insurers temporarily waived out-of-pocket charges and offered premium holidays, lowering rebates.

2022 average simple loss percentages in small and large group marketplaces were 83% and 88%. Only fully-insured group plans are subject to the ACA MLR regulation. About two-thirds of covered workers are in self-funded plans, which are exempt.

Rebate Processing

These 2023 rebate amounts are preliminary. By September, rebates or rebate notices are mailed out, and the federal government will provide a summary of each issuer’s total state liability later in the year.

Individual insurers can give rebates via cheque or premium credit. The employer and employee may receive the rebate if they share premium costs.

Insurers cannot handle rebates under $5 for individuals and $20 for groups if the administrative overhead is too significant.

What Can We Expect in the Coming Years?

Insurers may raise premiums in 2024 if individual market loss ratios rise again. During the pandemic, all insurers faced uncertainty in establishing premiums. Pent-up demand and the health repercussions of missed and delayed care may remain undetermined in 2024.

Millions of Americans are projected to lose Medicaid coverage in the coming months and may switch to other insurance, increasing premium uncertainty. Inflation-driven provider salary and cost increases may raise premiums. Marketplace insurer actuaries cited price and utilization growth as excellent drivers in 2023 rate submissions.

Claims to Health Premiums Earned

Health Coverage Portal TM, a market database maintained by Mark Farrah Associates, includes data from the National Association of Insurance Commissioners. We studied insurer-reported financial data.

This report does not include data from California Department of Managed Health Care-regulated HMOs in the Supplemental Health Care Exhibit dataset. This data note covers off- and on-exchange major medical insurance plans.

Simple loss ratios are the ratio of total claims to health premiums earned. Insurers expect 2023 rebates. 2022 rebates were 1% lower than projected. Final rebates can be larger or lower than predicted.

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