Private insurers are expected to pay about $1.1 billion in medical loss ratio rebates in 2023, a new analysis found.
The report, published Wednesday by the Kaiser Family Foundation (KFF), relied on preliminary data reported by insurers to state regulators. Some insurers haven’t reported their rebate estimates for this year yet, but final data will be released later in the year.
Under the Affordable Care Act, insurers are limited in how much of premium income they can keep for administration, marketing and profits. Insurers in the individual and small group markets must use 80% of premium income on healthcare claims and quality improvement efforts, while those in large markets must use at least 85%. The rest they can use for administration, marketing and profits. Medical Loss Ratio rebates are based on 3-year averages, so 2023’s rebates are based on 2020, 2021 and 2022 insurer financial data.
“Insurers that fail to meet the applicable [medical loss ratio] threshold are required to pay back excess profits or margins in the form of rebates to their enrollees,” KFF said.
Individual market insurers are estimated to owe about $500 million to enrollees. This includes enrollees in ACA marketplace plans. Small group market insurers are anticipated to owe about $330 million. Large group market insurers are expected to owe about $250 million.
This year’s total rebates are similar to last year’s, which were at $1 billion. Rebates in 2022 were given to 2.4 million people with individual coverage and 3.8 million people with employer coverage. The average rebate was $205 per person for those in the individual market, $169 per person for those in the small group market and $110 per person for those in the large group market. Employees only receive a portion of this rebate, however, because it is shared with the employer.
While the $1.1 billion in rebates this year is higher than last year, it’s still significantly lower than 2020 and 2021, the analysis showed. A record $2.5 billion were paid in rebates in 2020 and $2 billion were paid in 2021.
The rebates in 2023 are reflective of challenges felt during the Covid-19 pandemic, which led to lower medical loss ratios from people skipping care.
“Hospitals and providers canceled elective care early in the pandemic and during spikes in COVID-19 cases in order to free up hospital capacity, preserve supplies, and mitigate the spread of the virus,” KFF stated. “Many consumers also chose to forego routine care in 2020 due to social distancing requirements or similar concerns. As insurers had already set their 2020 premiums ahead of the pandemic, many turned out to be over-priced relative to the amount of care their enrollees were using. Some insurers offered premium holidays and many temporarily waived certain out-of-pocket costs, which had a downward effect on their rebates.”