If spending targets for patient care aren't reached, money must be returned.
The nation's health insurers will pay out more than $1 billion in rebates over the coming days after many of them fell short of new standards that require them to spend a certain share of premiums on patient treatment.
The new rules, part of the federal health care overhaul that recently survived a Supreme Court challenge, aim to hold insurers accountable for how much they spend on salaries, marketing and other administrative expenses, while also making premiums more affordable.
In Minnesota, five insurance companies will return $8.96 million. In all, 123,172 consumers will benefit, according to federal data.
Studies have suggested that insurers are in fact spending a higher percentage of premiums on patient care than in the past, or the payouts would have been noticeably larger.
U.S. Sen. Al Franken, D-Minn., said that's a sign that the new rule is having its intended effect. "It was a big victory for patients," said Franken, who championed the provision.
The bulk of the rebates in Minnesota will come from HealthPartners, which will return about $6.8 million to employers covered by its large group plans. In all, 221 businesses, or about 3 percent of its membership, will receive an average rebate of about $56 per member.
"It's difficult to predict health care costs and utilization," HealthPartners spokesman Jeff Shelman explained in an e-mail, "and for the second consecutive year we saw lower than predicted utilization."
Fewer HealthPartners members had elective surgeries, he said, and the use of generic drugs saved "tens of millions of dollars a year."
For most people, the checks won't make a dent in the household budget. The average Minnesota family on an individual plan will collect about $38, while the average rebate for large business accounts is $197. No rebates are going to the state's small businesses.
There are some outliers, however: CIGNA's average rebate to large company plans is about $1,335. A company spokesman said the rebate covers a small portion of its Minnesota business, or about 2,000 customers.
The difference between meeting and not meeting the standard "can literally be a few large claims," CIGNA said.
Most consumers are insured by companies that meet or exceed the standard, according to data from the U.S. Department of Human Services. Those who buy individual plans directly from the insurers are most likely to see reimbursements.
Some insurers meet goals
About 62 percent of consumers are covered by individual plans that meet or exceed the standard. That compares with about 83 percent of people covered by small group plans and 89 percent of those in large company plans, which have 51 or more employees. Large corporations that are self-insured are not covered by the law.
Known informally as the "80/20 rule," the provision requires insurers to spend at least 80 cents of each premium dollar they collect on direct care, or else return a portion to consumers. The required spending is known as the medical loss ratio, or MLR.
Minnesota has had a medical loss ratio provision since 1993 that covers small and individual insurance coverage. It generally is set at about 82 percent in the small group and 72 percent in the individual market. Insurers that don't meet the standard one year must adjust their premiums the next.
As a result, insurers are paying much less in rebates under the federal law in Minnesota than in some other states.
Mississippi citizens are receiving the top average rebate for individuals, at $651. Georgia insurers are paying out $811 per member to small employers. Vermont insurers are paying an average $807 per member to large employers.
Some individual insurance customers will receive checks or see lump-sum reimbursements returned to debit or credit card accounts. The majority will go to employers, who have some leeway applying the rebates to reduce future health care costs through premiums or other methods.
While everyone likes an unexpected check in the mail, benefits consultant David Delahanty said there may be unexpected headaches, especially for small businesses.
"Employers are going to have to decide on an equitable way to distribute it," he said. "What about people who no longer work for the company? They're the ones who overcontributed. It'll be interesting to see how it shakes out in the retail or restaurant industry where there's a lot of turnover."
Effect on premiums
While insurers weren't required to pay rebates last year, they did have to file reports with the federal government. The Government Accountability Office estimated that had the law been implemented last year, about $2 billion in rebates would have been returned to consumers.
In Connecticut, Aetna reduced premiums by 10 percent. That's evidence that the law is working, Franken said.
"In a number of places this has brought down health care premiums and in some cases they haven't gone up when otherwise they would have," he said. "The insurance companies looked at what happened last year and adjusted accordingly."
David Heupel, senior health are analyst at Thrivent Financial, said the 80/20 rule has contributed to price stability, particularly among the national managed care companies.
They're much less willing to set an "irrational price" to grab market share because they no longer can bank the reserves to cover it.
"We're seeing much more disciplined pricing than we'd normally see at this stage," he said.
"It's not chump change," Heupel said, but companies like United have figured out how to incorporate this and other elements of reform and "still manage to produce nice returns for shareholders."
"It isn't as dire as we all thought it could have been," Heupel said.
Jackie Crosby • 612-673-7335