Rebates to employer groups from Minnetonka-based UnitedHealthcare increased by about 40 percent in 2017, according to a new report, and fit with a broader trend of slightly improved profitability for carriers compared with the previous year.
The report this month from Mark Farrah Associates shows UnitedHealthcare for 2017 paid rebates to large and small employers worth $146.2 million — up from $104.3 million in 2016, according to the Pennsylvania-based market research firm.
The federal Affordable Care Act (ACA) requires health insurers to pay rebates if they fail to spend specified percentages of premium revenue on medical care and quality improvement programs. The rule is tied to an insurer's "medical loss ratio" and effectively caps the share of premium revenue that an insurer can keep for administration and profit.
"Our focus is on providing our customers with competitively priced products that deliver the best value for their health care dollar," UnitedHealthcare said in a statement. "We do not pay rebates in the vast majority of cases."
The ACA says insurers in the large group market must spend 85 percent of their premium revenue on health care and quality improvement work. In the small-group and individual markets, they must spend 80 percent of premium revenue on these health care expenses.
When the ratio dips below these standards, the law requires carriers to rebate the difference back to consumers according to a calculation that factors financial results over several years.
Across all three markets, total rebates from all insurance companies increased from $446 million in 2016 to $709 million in 2017, according to the Mark Farrah Associates. The one-year rate of increase at UnitedHealthcare was slower than the overall market.
"Overall, rebates paid to consumers continue to be a small portion of industry premiums although total rebate dollars increased by 59 percent over 2016," the report states. "With a limited number of exceptions, rebates due to customers were generally not financially material and have had a minimal overall impact on insurance companies."
In the market where large employers buy coverage, UnitedHealthcare collected $24.4 billion in adjusted premiums during 2017 and paid out $86.8 million in rebates, according to the report. In the small group market, UnitedHealthcare collected more than $12.5 billion in adjusted premiums and paid $59.4 million in rebates.
In both markets, rebates accounted for less than 1 percent of premium revenue.
At UnitedHealthcare in the large-group market, the weighted average medical loss ratio (MLR) was 87.2 percent, meaning about 87 cents on the dollar went to health care expenses. That's better than the regulatory standard, but United still had to pay rebates because the standard is applied on a state-by-state basis.
United and other carriers "all had affiliate plans with MLRs at the state level below the 85 percent standard leading to the rebates due," the report said. It was a similar story in the small-group market, where UnitedHealthcare's overall MLR was 82.5 percent, according to the report.
During 2017, UnitedHealthcare didn't pay much in rebates across the individual market, where the company wasn't a large provider of coverage, according to the report.
Blue Cross and Blue Shield of Minnesota paid out $19.6 million in individual market rebates during 2017, which was the fourth-highest tally among all carriers in the market, according to Mark Farrah Associates. Profitability in the segment at Blue Cross rebounded after the insurer eliminated popular individual market health plans that generated red ink in 2016. Rebates stemmed from two factors — the remaining health plans at Blue Cross of Minnesota made money during 2017, and the previous-year losses from the discontinued health plans were no longer part of the rebate calculation.