Obamacare Is Making Insurance Companies More Efficient

Obamacare may already be making private health insurers more efficient, according to a year-over-year comparison of data related to the biggest consumer protection in the law.

Last year, insurers had to rebate $1.1 billion to consumers because they failed to meet the minimum payout percentage required by the law.  That was the first year the payout provision, or mandatory minimum loss ratio, was in effect.

This year, the federal government has announced that the rebate will be just half that – slightly more than $504 million.

And the number of consumers who receive a rebate will also be smaller.  Last year, 12.7 million customers received rebates.  This year, the number receiving rebates has dropped by one-third, to 8.5 million.

Why are fewer and smaller rebates a good thing?

According to the Department of Health and Human Services, this is evidence that insurers are “spending more of their premium dollars directly toward patient care and quality, not red tape and bonuses.”

The loss ratio provision is sometimes described as the 80/20 rule.  It states that, for every health insurance plan it offers, a private insurer must pay out at least 80 cents of every premium dollar on patient benefits, reserving only 20 cents for administrative costs and profits.  (For some plans, the requirement is 85 cents.)  Whenever it does not, it has to rebate its customers the difference.

The provision does not affect Medicare, because Medicare has significantly lower administrative costs than private insurers, and regularly pays out around 95 cents in care for every dollar it takes in.

Those who receive rebates may be happy, but it is better not to receive one.  A rebate is a sign that your insurance company has not paid out enough in benefits to the people as a whole who are covered by your plan.  This can happen to any insurer – especially when its customers have a healthier year than expected.  But if you have received rebates for two years in a row, you might want to ask why, and consider whether another plan would be better for you.

HHS breaks the data down by state and by three categories.  This year there were six states in which every plan met the standard in the individual insurance category, fifteen states in which every plan met the standard in the small group category, and ten states in which every plan met the standard in the large group category.

In no state did every insurer meet the standard in all three categories, but there were six states in which insurers met the standard in at least two categories.  

In Vermont and Alabama, every small group and large group market insurer met the standard.  In South Dakota, Rhode Island, Maine, and Hawaii, every individual and small group market insurer met the standard.  Rhode Island probably edges out the other states as best overall – in the one category its insurers will pay some rebates, the average will be only $43 per policyholder.

For this year, every Connecticut insurer met the standard in the large group market, after at least some fell short in all three areas last year.  And there was a big drop in the average rebate in the individual market, from $124 to $64.  The small group market, though, saw an increase, from $162 to $357.

And even Floridians, with a weak state insurance regulator, have something to celebrate.  The size of the average rebates went down in all three categories, from $240 to $164 in the individual market, from $190 to $94 in the small group market, and from $94 to $51 in the large group market.

In general, the results for this year appear clearly more attributable to the work of the federal government than to the states. 

In fact, last year, there were 37 total times across all fifty states when all the insurers in a given category met the standard.  This year, that number went down to 31.

But the bottom line is unmistakable.  On the whole, insurers are paying attention to this consumer protection, and working to meet this new standard.  And this is something that would not be happening if it were not for Obamacare.

As HHS headlined in its release, consumers have saved a total of $3.4 billion upfront in their insurance premiums this year as a result of Obamacare, in addition to the $500 million in rebates.  This may not be all we wanted.  But it is a start.

Paul Gionfriddo via email: gionfriddopaul@gmail.com.  Twitter: @pgionfriddo.  Facebook: www.facebook.com/paul.gionfriddo.  LinkedIn:  www.linkedin.com/in/paulgionfriddo/ 

States and Rebates

If you run a small business in Florida, are self-employed in Texas, or work for a large corporation in New Jersey (see an update below), then your state insurance regulators probably haven't been working for you.

The news that 15.8 million people can expect $1.3 billion in rebates from insurers this year because of the Affordable Care Act (ACA) underscores how weak health insurance regulation has been in states across the country. 

It may come as no surprise that Florida and Texas, two leaders in the fight against ACA, have been exposed as anti-consumer.  But they are not the only states with an anti-consumer bias.

First, the good news: last week, the federal government announced that three-quarters of us will get letters beginning on July 1 telling us that our insurance plans paid out at least 80 to 85 cents in benefits for every premium dollar they collected.

This means that under ACA they met the minimum standard for a reasonable benefit payout (which is still ten or more percentage points worse than the Medicare payout). 

But there’s bad news as well.

According to new data released recently by the Kaiser Family Foundation, 31% of consumers who purchase health insurance in the individual market, 28% who get insurance in the small group market, and 19% who get insurance through the large group market were covered by plans that failed to meet the minimum standard.

Assuming the Supreme Court upholds this most important consumer protection in the Affordable Care Act, all of these people are entitled to rebates.

The amount of the rebates will vary widely.  For example, over 2,700 Alaskans in one small group plan will get over $500 each.  Over 325,000 Floridians in thirteen individual market plans will get an average of $152.  And 46,000 Connecticut residents in three individual market plans will average almost $137 in rebates.    But people insured through the individual market in Maine won’t get anything – because they weren’t overcharged in the first place.

Until the Affordable Care Act passed, this type of insurance regulation was handled by the states. 

The new data give us a picture of which states have been looking out for consumers and which haven’t. 

Here’s a link to a tableI created from the data showing what percentage of individual, small group, and large group customers will get rebates in all fifty states (excepting California) and the District of Columbia.

The two states that have done the best job in protecting the interests of state consumers are Hawaii and Rhode Island.  These are the only two states in which every health insurance plan met the minimum standard last year.

At least one plan in every other state falls short.  But New Mexico, South Dakota, Vermont, New Hampshire, North Dakota, Alabama, Alaska, Maine, and Oregon all protect well over 90% of their health insurance consumers.

However, in Florida alone, two dozen plans don’t meet the minimum standard.  Twenty-one fall short in Texas.

By far the worst state overall is New Jersey, where 62% of people covered in the individual market, 79% of those covered in the small group market, and 67% of those covered the large group market have been overcharged for their health insurance. (See an update below.)

Several other states aspire to New Jersey’s low standard. 

South Carolina and the District of Columbia have even worse consumer protection records than New Jersey in two of three areas.  And in Oklahoma, Arizona, and Texas, more than eight out of every ten consumers were overcharged in at least one of the three areas.

Who specifically is paying the price for this?

In Texas – where over 90% of those insured in the individual market were overcharged for insurance – it is people who are either self-employed or have chronic conditions which disqualify them from group coverage.

In Florida and Missouri, it is small business owners and employees.   In Florida, 73% of those covered in the small group market were overcharged for health insurance, and in Missouri, 72%.

Florida’s numbers are worse than the nation’s across the board – in addition to 73% of those in the small group market, 38% of those covered by individual plans and 37% of those covered by large group plans have been overcharged.

And Connecticut – home to the insurance capital of America – was worse than the nation as a whole in both the individual market and the large group market, where 42% and 28% were overcharged, respectively.

So should ACA consumer protections trump states’ rights?  In this case, I can think of 1.3 billion reasons why they had to.

Click here to see the full list of the states in the Kaiser rankings.

Update:  HHS released its final list of the states in June (available at this link).  The final national rebate numbers were amended downward somewhat - to 12.8 million customers receiving $1.1 billion in rebates.  As was pointed out to me by a New Jersey reader, some of the individual states' information changed dramatically in the final analysis - New Jersey's among them. The final New Jersey numbers were significantly lower than the initial Kaiser Family Foundation numbers.  $7.5 million in rebates will be given there - none in the small group market - placing New Jersey in the upper tier of states.