When the Affordable Care Act was signed into law by President Obama on March 23rd, 2010, one of the things that went into effect was profit caps on health insurance companies. If a company does not spend enough of a customer’s premium on medical costs, the customer will receive a rebate. The ratio that determines how much a company spends on medical cost is called the medical loss ratio, or MLR.
MLR is defined as medical costs divided by premium revenue. Let’s say hypothetically you had $50 of medical costs and $100 paid in premium revenues. Your MLR would be 50%.
Health Insurance companies must spend at least 80% of premiums from the individual and small business on medical expense, or else they will have to pay back the difference in the form of a rebate check. Similarly insurance companies will have to pay at least 85% of premiums from large group business on medical expense.
The loss ratios are analyzed at an ‘aggregation set’ level. An aggregation set is made up of a state (location) and a line-of-business (individual, small, large). Even if you did not personally cost your insurance any medical expense, you may not receive a check. It depends more about what the loss ratio is for the aggregation set you fall under.
31% of individual policyholders, 28% who roll up under a small business plan, and 19% of those rolling up under a large group planare expected to receive a rebate.
Health Insurers expect to pay more than $1 Billion in rebates. If you look at this breakout by the Kaiser Family Foundation you can see approximately how much will be paid out in each state, by line of business.
There is a chance that you will get a rebate check in the mail. Rebate checks should be out the door by the end of August at the latest. The exact amount is hard to tell.
The highest estimated rebate is for those who fall under the small business category in Alaska. These individuals are estimated to receive $517 rebate.
More likely than not, you won’t receive a rebate. If you do, it almost certainly won’t be anything material (unless you live in Alaska). Whether or not MLR regulation helps cut the cost of health care is beyond the scope of this post, but would make for an interesting post in the future.
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