- Health plans that sell insurance products under the Affordable Care Act may have to refund nearly $2.7 billion in premiums this year, according to a new report by the Kaiser Family Foundation. That's by far the highest total since the landmark law took effect a decade ago and refunds began in 2012.
- The refunds are tied to health plans that sell ACA-regulated products that fail to meet minimum medical loss ratios for their products. The mandated MLR is 80% for individual and small group plans and 85% for large employer group plans. However, the average MLR among ACA-mandated plans dropped from 82% in 2017 to 70% in 2018. It only rebounded to 79% last year. Refund calculations are based on the prior three years of performance.
- The report notes that the average refund would be $340 per enrollee, although individual and small group enrollees would receive significantly more. The refunds would come as health insurers are scrambling to calculate 2021 rates in the midst of the COVID-19 pandemic and uncertain costs to treat patients.
The past three years have been very profitable for health insurers that sold plans regulated by the ACA, whether in state or federal exchanges or to employer groups. However, the KFF study, commissioned by Market Farrah Associates, calculates that those plans were also overpriced, particularly in 2018, when the average MLR sunk significantly below mandates. Insurers will have to refund a large chunk of their profits back to policyholders as a result.
Altogether, KFF calculates the refunds will be about $2.66 billion in total. That's nearly double the $1.4 billion refunded last year, which in turn was double the $700 million paid back in 2018. In 2016 and 2017 the refunds totaled $400 million in each year. In prior research, KFF attributed the repeal of the individual mandate to driving up rates by about five percentage points last year, although MLRs also climbed last year.
Altogether, some 7.9 million health plan enrollees are eligible for the rebates, which can be issued in the form of a premium credit or a lump sum refund (most insurers opt for the latter). The money would be paid out later this year.
Small group market enrollees would be entitled to an average refund of $1,850 apiece; individual market enrollees would get back $420 per person on average; and large group enrollees would be rebated $110 apiece. Employers have the option of splitting the rebate with their workers.
Whether or not insurers get closer to the mark this year and next remains to be seen. KFF noted that the COVID-19 pandemic has created "significant uncertainty" regarding how their products should be priced next year, and there is still not enough data to determine how much it will cost to treat the coronavirus in 2020 and 2021.
Meanwhile, the report observed that "enrollment in individual market plans is expected to increase as millions of people lose their jobs and health insurance and qualify for a special enrollment period, but these new enrollees will not qualify for rebates when they are paid out in 2020 unless they were also enrolled at some point in 2019."
Payers have noted this likely uptake in exchange enrollment. UnitedHealthcare executives said during a first quarter earnings call last week the company might offer marketplace plans in more regions for 2021 after dropping many areas a few years ago.