Individual Insurance Market Vaults Rebates to Historic $1.3 Billion

September 12, 2019 - Healthcare payers will be paying back $1.3 billion in rebates to consumers, and the individual health insurance market played a significant role, a study by the Kaiser Family Foundation (KFF) found.

This is the largest sum of rebates since the Affordable Care Act (ACA) went into effect in seven years ago.

“Individual market insurers appear to have been exceptionally profitable in 2018, on average, which is part of the basis for this year’s rebate payments,” KFF explained in a press release.

The ACA established the medical loss ratio (MLR), which sets a threshold for how much of a premium may be apportioned to the health plan’s upkeep and making profits. The MLR currently requires that 80 percent of premium revenue be expended on consumers health management while 20 percent can go to administrative and marketing costs and profit.

Payers are mandated to disclose how they spend their premiums for public payer services. Furthermore, if their spending on marketing, administration, or their profits off of premiums exceed the MLR threshold, they are required to pay a rebate to their consumers.

The percentage that payers must repay in the rebate is determined based on the payer’s last three years of fiscal performance.

This year, payers will owe consumers a total of $1.3 billion for 2018 rebates, which represents every market. Rebates must be delivered to employers and members by September 30, 2019.

Last year rebates totaled at $706.8 million, while rebates in 2017 hung at around $446.9 million. For the four years prior, rebates fluctuated between approximately $500 million and under $330 million.

The only time the rebate has reached anywhere close to these current levels was in 2012 when rebates, which were based on 2011 fiscal performance, hit $1.1 billion total. At the time the individual and large group health insurance markets were about equal in responsibility for the rebate levels. 

In contrast, this year, individual health insurance market, which has experienced an enrollment decrease of five percent, is the market vaulting the MLR rebates.

Of the $1.3 billion in rebate dollars delivered by either premium credit or check to employers and members across the nation, $743 million will go to those in the individual health insurance market, $250 million will go to small group health insurance market members, and $284 million will be delivered to large group health insurance market members.

The group health insurance markets, both small and large, have not seen much change in the past year. However, the individual health insurance market shot up to nearly seven times what it was last year, based on the KFF MLR rebates graph.

These rebate totals may differ depending on the state a consumer is in, with individual health insurance market rebate payouts as low as $0 and as high as $111.3 million.

Rebates are highest in Virginia, while Arizona comes in rather close behind the Old Dominion state at $92.3 million. After Arizona, the numbers slope to Texas’s $80.4 million and below.

Centene, HCSC, Cigna, and Highmark are the large payers with the highest rebates in the individual health insurance market. These payers enjoy high enrollment and a multi-state footprint.

Centene, which has the highest individual health insurance market total rebates, must pay out upwards of $216.9 million across at least seven states. However, ultimately this comes down to $420 per individual subscriber, which is low in comparison to a smaller plan located in Virginia.

Sentara’s Optima must pay out $98.9 million this year, which amounts to $1,850 per individual subscriber.

The size of the rebate itself, according to the MLR calculation, may mean the employer or member will never receive it. If the rebate is so extraordinarily low that the cost of processing it would make the payment inordinate, then payers are not required to deliver the rebate.

The results did not come as a surprise. In fact, to some, the individual health insurance market’s jump was predictable.

“Many payers cited expected medical loss ratio (MLR) growth in the individual market and the loss of ACA policies as the reasons for 2019 premium increases,” HealthPayerIntelligence.com reported in 2018.

In 2020, rebates will be based on plans’ financial performance from 2017 through 2019. As a result, KFF foresees that the rebates should be high again, since the individual health insurance market sustained very few losses in these years.