Wednesday marked a milestone in the implementation of President Obama’s health reform law as insurance companies quietly doled out $1.1 billion to 12.8 million Americans in rebates.
The Affordable Care Act (ACA) aims to limit the amount of money insurers can collect in profit, while lowering the cost of health care for consumers and maintaining the same standards of coverage. To do this, the Administration created new federal standards for the Medical Loss Ratio, a tool long used by state governments to regulate insurers. As TIME’s Kate Pickert describes in detail, the ACA requires insurers to spend a certain percentage of what consumers pay them (either 80% or 85%, depending on the size of the market in which the insurer operates) on medical claims and quality improvement initiatives. The remainder can be used for administrative costs and profits. If insurers stray from that ratio, they will now have to send out rebates to cover the difference.
So how did the first ACA rebates turn out? According to the Department of Health and Human Services, most insured Americans–66.7 million people–did not get rebates. Those that did were mostly in the individual market or in a small group market. The average rebate per family was $151, with the highest rebate exceeding $800 for families in select markets in Georgia.
The rebates were smaller than some expected, in part because many insurance companies have already changed their practices, slashing administration costs or spending more on quality improvement in anticipation of the new MLR rules going into effect.
“The rebates were certainly smaller than what would have been reported last year,” says Tim Jost, a law professor at Washington and Lee University. “Last year there were no rebates, but the insurers filed supplemental blanks with the National Association Insurance Commission, and those blanks showed that if rebates had been paid it would have been around $1.9 billion dollars.”
Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, a lobbying group, emphasizes that rising health insurance premiums are the result of increasing medical costs, not corporate profits. “Ninety-six percent of the increase in premiums over the past five years was due to an increased spending on health care services,” he says.
Jost agrees that health care services drive up premiums, but insurers still play a part. “The situation we’ve had for two years, three years, is that health care costs have not been going up very fast, and premiums have been going up much faster. Medical Loss Ratio is not a silver bullet, it’s not going to kill health care cost inflation. What it is going to do is, and is doing, is to align premium increases with health care cost increases.”
According to a recent study conducted by the consulting firm Towers-Watson, health care costs have grown 5.9% in the last year, while employees’ share of premiums increased 9.3%.
Future rebates will likely be smaller and doled out to fewer Americans as more insurers comply with the ACA’s MLR rules. But the new round of rebates has arrived at a convenient time for President Obama. While most of the larger provisions of the ACA like the individual mandate won’t kick in until 2014, the rebates are a tangible reminder to 12.8 million Americans that Obama’s signature domestic initiative is doing a little something for them. In an election year, that’s good news for the President.