Insurers May Benefit from Early Premium Rebates

by Peter Johnson

Since the beginning of the COVID-19 pandemic, which saw health care utilization crater — and insurer margins grow as a result — payers have refunded billions of dollars to members and plan sponsors.

The Affordable Care Act's (ACA) medical loss ratio (MLR) rules require commercial insurers to spend at least 80% of their premium revenue from individual and small group plans and 85% of their large-group revenue on claims and quality improvement. The ACA requires any profits above those rates to be rebated to plan members.

With utilization particularly depressed in the second quarter of this year, MLRs were unusually low. Experts say that the current rebates insurers are issuing to customers show they are being proactive about paying their MLR obligations.

"I'm sure this [rebate trend] is a way to help smooth out the balance sheets on a quarter-to-quarter basis," says Mark Hope at Willis Towers Watson. He adds that the early remittance of MLR rebates will help manage investor expectations.

Payers have been criticized by lawmakers because of their burgeoning margins in the second quarter, and industry critics contrasted insurers' strong results with providers' steep losses. Avalere Health founder Dan Mendelson says that refunding premiums now will help companies' public standing.

"I think that consumers want and need the money, and they're going to appreciate it more now than if it comes in the middle of next year," says Mendelson. "The PR game is always important, and especially in the midst of this pandemic, when you compare the experience of health plans with that of hospitals. Hospitals are on the front line, and many community hospitals are suffering economically. That contrast with the plan experience is pretty significant, and I do think that plans would be well-served to be thinking about that."

Michael Abrams, co-founder of Numerof & Associates, says that insurers need to consider how their actions during the pandemic will impact coming health care policy fights in Washington, particularly in light of the zero-sum dynamic that payers and providers play out in political and policy contexts.

"There's no point in giving your enemies ammunition for their next anti-payer commercial," he observes. "Not when you can pay out the same dollars, basically, and at least position yourself as trying to be sensitive to the financial needs of policyholders."

From Health Plan Weekly