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Will I get a health insurance rebate this summer?

By on June 18th, 2012
Filed: Consumers, Facts, Health Insurance, Health Reform, You

eHealthInsurance recently surveyed its customers and found that most of them (89%) didn’t realize that the health reform law could make them eligible for a rebate on their health insurance premiums this summer.

In case this is news to you too, here’s how it works:

The Affordable Care Act (the health reform law) requires major medical health insurance plans to spend at least 80-85% of collected premium dollars on member medical care, beginning in 2011.  This is the law’s so-called “medical loss ratio” rule.

Insurers who did not meet that requirement in 2011 are required to return the difference to policyholders no later than August 1, 2012.

Approximately 15.8 million consumers were covered under plans for which an estimated $1.3 billion in rebates will be issued this summer, according to the Kaiser Family Foundation. The amount of the rebate issued to policyholders may vary substantially by health insurance plan, by state, as well as by other factors.

If you’d like to know more, we’ve compiled a list of answers to frequently asked questions:

Q: Why are health insurance companies sending rebates to policyholders?

A: In order to deliver maximum value for every dollar a consumer spends on health insurance, the federal health reform law requires insurance companies to spend a certain percentage of their income from monthly premiums directly on policyholder benefits beginning in 2011. The law states that for every dollar an insurance company brings in through member premiums, 80-85 cents must be paid out again toward member medical expenses.

This balance of incoming premiums and member medical expenses is known as a “medical loss ratio.” If a health insurance plan failed to achieve that 80-85% medical loss ratio in 2011, the insurer must refund the difference back to policyholders.

Q: Will I get a rebate?

A: Not everyone will receive a rebate. But if your health insurance plan in 2011 did not meet the 80-85% medical loss ratio requirement, you may be due a refund. Health insurance companies are required to notify policyholders how their plans performed under the new rule, whether or not they will receive a rebate. Contact your health insurance company if you haven’t heard from them by the end of June.

Q: Does the medical loss ratio rule apply to both employer-sponsored plans and individually-purchased plans?

A: Yes, it applies to major medical individual and family plans as well as employer-based group health insurance plans, small and large. However, it does not apply to Medicare, Medicaid or certain other government-sponsored coverage programs.

For privately-purchased individual or family plans, any rebate due will go to the primary member on the policy. For employer-based group health insurance plans, the rebate will be made to the employer.

Q: Do I get a rebate if I’m covered under an employer-sponsored health insurance plan?

A: Possibly. The health care reform law requires that refunds are made to policyholders – which for employer-based plans means employers. However, if you contributed toward your monthly health insurance premiums in 2011, a portion of that refund may be due to you too. The law allows some flexibility in how employers handle rebates. Most employers are required to either pass on the refund to employees in a proportional manner or else use the employee portion of the refund to provide enhanced benefits under the plan. Ask your employer if they received a refund and what they plan to do with it.

Q: When are refunds due?

A: By law, refunds due for 2011 premiums must be paid out no later than August 2012. Any refunds due based on premiums paid in 2012 will be made in 2013.

Q: How many people are expected to get rebates?

A: According to estimates from the Kaiser Family Foundation, individually-purchased and employer-sponsored health insurance plans covering as many as 15.6 million Americans are expected to issue rebates in 2012.  Nearly a third (31%) of consumers covered under individually-purchased health insurance plans are expected to receive a refund this year.

Q: How large will these rebates be?

A: According to government estimates, rebates paid out to policyholders who bought coverage for themselves or their families (that is, coverage not obtained through employers) may average about $164. The actual amount of the refund will vary substantially by state, insurance company, health insurance plan, etc.. Since employers typically cover a large percentage of the monthly premiums paid for members of employer-based plans, the amount of the refund finally due to persons covered under employer plans may be less.

Q: What happens to the medical loss ratio rule if the health reform law is thrown out?

A: The Supreme Court is due to rule on the constitutionality of the health reform law this summer. Refunds made this year are not expected to be affected by the court’s decision, but if the medical loss ratio rule goes away then future rebates may not happen.

Q: What does it say about my health insurance plan if I get a rebate?

A: If you get a rebate, it means that your health insurance plan exceeded the income-expenditure ratio required by the health reform law. It could be that there were fewer member medical expenses than predicted for your plan in the past year. If you get a rebate and you believe your health insurance plan no longer meets your needs and budget, shop around. However, if you’re still on the same plan and it does meet your needs, getting a refund in 2012 may be good news— your health insurance company might be less likely to impose a heavy rate increase this year, in order to avoid paying refunds in 2013.

Q: What does it mean if I DON’T get a rebate?

A: It suggests that your health insurance plan achieved a reasonable balance of premium income and member medical expenses. Your insurance plan met the federal MLR guidelines in 2011. It does not necessarily mean, however, that your plan is still the best plan for you, especially if your coverage needs have changed.

Q: If I get a rebate, should I shop around for a different plan?

A: That’s up to you. If you’re happy with the plan and it still meets your needs and budget, you may prefer to stick with your current plan. However, it’s never a bad idea to get fresh quotes on health insurance plans in your area about once a year – just to make sure that you’re not missing out on a new plan better suited to your needs. Remember, never cancel an existing health insurance policy until you’re approved for coverage under a new one.

 

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About Keith Mendonsa


As a Sales Officer in the individual and family department at eHealth Insurance, Keith Mendonsa has been featured on CNBC News in the Bay Area and his expert Health Care opinions have been quoted in several media publications. At the core, Keith is a family man, happily married with a rambunctious 2 year old son and another child on the way.

8 Comments Add Your Comment

NANCY DAVIS on Thursday, July 12 @ 8:25 pm

Will retired ma. state employees get the rebate?

NH on Wednesday, August 1 @ 4:22 am

What about employees on Cobra? Do the employers have to to send the rebate or can they use the rebate for premium deductions that will not affect the cobra plan?

Nate P., eHealth on Wednesday, August 1 @ 9:49 am

Hi Natalie,

This is a great question. We’re working on a response for you.

Douglas D., eHealth on Wednesday, August 1 @ 10:35 am

NH (Natalie),

We did a bit of research on your question. The answer gets really complicated, but here’s a summary:

If your former employer gets a refund then it’s likely that a portion of that refund will be due to plan participants. However, since the employer is the actual policyholder in this case, they have a bit of freedom in what they do with the employee-portion of the refund. They may opt to divide the refund evenly between all plan participants and cut checks for each of them, or they may use the employee-portion of the refund to reduce employee monthly premiums, or in some other way benefit plan participants. When it comes to former employees who are still enrolled in the company health plan through COBRA, it’s largely left to the policyholder’s discretion whether or not to include them in the refund, or limit the refund to current employees only.

It may not feel fair, but that seems to be how it works. You’ll want to contact your former employer’s HR department or benefits administrator to find out 1) if they got a refund, and 2) if they will be sharing any portion of that refund with COBRA participants.

You can read some more about the issue of employer plan refunds here:

http://www.basusa.com/2012/employers-must-consider-application-of-mlr-rebates

Naomi on Wednesday, August 1 @ 7:01 am

I have medicare as my primary coverage, but I have AARP as my supplentary, should I expect a refund. It would be nice if I do.

Nate P., eHealth on Wednesday, August 1 @ 9:48 am

Hi Naomi,

Unfortunately, there are not rebates for private Medicare Supplement plans.

Martin Harrington Brooks on Wednesday, August 8 @ 1:25 am

I love the post. Planning your finances is a great idea. We deal with many people who are suffering from debt and advise them all to analyze their finances in detail. We provide them with an income and expenditure template to complete. It works out your debts and income to easily show you what you can actually afford to pay each month, and best of all it’s free to download. Look for the spreadsheet icon on the page then right click and save as.

I hope you find it helpful

STELLA CLIFFORD on Friday, July 26 @ 10:35 am

Hi, when I was working for a small family owned automotive business, I paid half of my healthcare cost for the year 2011 and most of 2012 through automatic payroll deductions. The company where I worked closed the business in September of 2012. After waiting months to get my rebate for 2011 and never receiving it, I finally sent my former employer a letter in the mail requesting my rebate. I finally received a check from him in November of 2012 and he said he didn’t know. That was a bunch of bull. I and my other co-workers received a letter in the mail explaining the rebates, so I’m sure he also received one. I contacted my co-workers and told them to contact our employer for their rebates. No one else got their rebate until they actually contacted him requesting it. Even though the company has since closed the business, aren’t the employees who still paid half of their healthcare costs from January through July of 2012 entitled to another rebate? Won’t our former employer get another check from our health insurance carrier (United Healthcare) for the year of 2012? What can I do to make sure that my former co-workers and I get the rebate we’re entitled to? If I contacted United Healthcare, would they be able to help us? Thank you for your help.
Stella C.

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