Former Democratic Sen. Al Franken tweeted recently that Americans will receive "$1.1 B in rebates from health insurance companies this year" because of a provision he wrote into the Affordable Care Act.
The tweet prompted many comments, including some from people who said they had never seen such a check from their insurers. That got us wondering: Is Franken’s tweet correct and, if so, how exactly do these rebates work?
We reached out to Franken’s press team to ask about the source of his data but received no reply.
Nonetheless, we found lots of information on the topic. As with everything else related to health insurance, it’s complicated.
Bottom line, though: There are rebates, probably along the lines of $1.1 billion for this year. But the chance that any given consumer will see one is fairly small.
First, the backgroundFranken was a senator from Minnesota during the drafting of the Affordable Care Act, which was signed into law in 2010 by then-President Barack Obama. That measure, also known as Obamacare, included a provision related to rebates. And, yes, Franken did get it inserted in the law, said health insurance expert Louise Norris.
It’s known as the medical loss ratio, or MLR, and though it sounds wonky, it’s pretty straightforward. The MLR refers to how much insurers spend on paying for medical care for its enrollees versus other administrative costs. The Affordable Care Act provision aims to curb the amount of premium dollars that insurers use for such administrative costs, which can include marketing, profits, and executive salaries and bonuses.
"We now have the numbers where we can see how much they spent, how much they took in, and how much must be rebated," said Norris, a health policy analyst for healthinsurance.org. "It holds these companies accountable."
How does it work?The medical loss ratio is calculated not based on what any individual patient spends on premiums or other medical care costs during the year.
Instead, the standard insurers must meet is to spend at least 80% of their premium dollars, in some instances more, on "the collective you: all the people in the plan," said Cynthia Cox, a KFF vice president who directs KFF’s Program on the Affordable Care Act.
So insurers add up all the premium dollars they bring in across a state for each type of plan they offer, such as those sold to individuals, those that cover small businesses, and those that cover large employers.
Then they add up all the claims costs for medical care for all the customers enrolled in those plans. For policies offered to individuals or small groups, the insurer must have paid out at least 80% of premiums on direct medical care or quality improvements. Large employer plans must spend 85% on medical care. An added nuance: The totals are aggregated over the previous three years.
Consumers "individually might have spent a lot of money on premiums last year and used no health care," Cox said. But that’s not what the medical loss ratio is attempting to gauge. It examines whether plans "offer a good value for all those people who are enrolled."
If those targets are not met, rebates kick in.
There are many reasons why insurers might miss the target.