Federal law limits spending premiums on nonmedical expenses.
Checks will be going out to more than 8,000 Minnesotans and a number of businesses in the coming weeks in a rebate program established as part of federal health care reform.
The Affordable Care Act requires health insurance companies to spend at least 80 cents of every dollar collected in premiums on medical care, as opposed to marketing, commissions, administration and profits. Insurers that fall under the mark must return the difference to consumers and businesses in a check or premium rebate.
Minnesota will get about $1.43 million back from two insurers, compared to $8.9 million last year, the first year the law’s requirement was in effect. Nationally, the amount of rebates dropped as well, with insurers paying out about $504 million, down from $1.1 billion the previous year.
“It’s working,” said U.S. Sen. Al Franken, who championed the provision that’s based on a Minnesota law passed in 1993. “Companies are meeting the [requirement] more, that’s why there are less rebates this year. People are saving the money up front … and companies are using the 80 or 85 percent of premiums on actual health care. Which is the point.”
The rebate program, fought by insurers, is one of the more prominent consumer protections in the Affordable Care Act and was one of the earliest to take effect.
Rebate checks are tax-free and must be sent before Aug. 1.
PreferredOne is paying out about two-thirds of rebates in Minnesota. The Golden Valley-based insurer will return $983,686 to 8,060 households that have purchase individual policies, for an average rebate of about $122.
Connecticut General Life, better known as Cigna, will return $451,574 to Minnesota companies that purchased policies through the insurer’s large-group market.
Three Wisconsin-based insurers that do business in Minnesota also will be required to pay rebates, according to federal data. However, it’s unclear how many Minnesotans might see checks from the three firms — Golden Rule Insurance Co., John Alden Life Insurance Co. and Time Insurance.
“This year caught us by surprise to be that big a number,” said PreferredOne CEO Marcus Merz, whose company paid about $149,000 in rebates last year.
But Merz said it came as PreferredOne is expanding its reach in the individual market to get ready for the new insurance exchange, MNsure, which launches in October.
“Our rates were lower, so we picked up younger people and we picked up a lot more people buying the higher deductibles,” he said. “The good news is, it’s a nice check back to the 9,000 members.”
A report on the provision by the Kaiser Family Foundation found that the main beneficiaries of the rule’s upfront premium savings are those who purchase insurance on their own.
In 2010, before the federal law held insurers to a set medical-loss ratio, fewer than half of the individual plans were in compliance, the report found. But in the past two years, insurers in many states have reduced their commissions and other administrative expenses to become more efficient, according to Kaiser, which is what Franken had envisioned.
“It’s basically to hold their feet to the fire, to incentivize them to become more efficient,” he said.
Jackie Crosby • 612-673-7335