The reform law has a say in how health insurers spend your premium dollars. Health insurers must spend premium dollars mainly on health care claims and improving the quality of care, such as through wellness programs, rather than on administration and overhead costs like staffing customer service lines. If they don't, they must pay a rebate to members.
The percentage of premium dollars a health insurer must spend on health care is called the "medical loss ratio" or MLR. The rebate is called an MLR rebate.
Health insurers must spend at least these amounts on health care:
- 80 cents of each premium dollar for individual and small group plans (usually less than 50 employees)
- 85 cents of every premium dollar for large employer group coverage (usually more than 50 employees)
Insurers that don't meet these minimum amounts must send rebates.
How it impacts you
- You can be certain that health insurers are spending most of your premium dollars on health care.
- You may get a rebate if your health insurer doesn't spend enough on health care costs.
How do I know if my health insurer owes me a rebate?
If you or your employer is supposed to get a rebate, the insurer will tell you about the rebate by sending you a notice. You will also get a notice to let you know if your insurer met the medical loss ratio requirement and that no rebate will be given.
Will I know if I am getting a rebate?
The MLR is measured every June for the previous year and rebates are sent every August.
If you're covered by your employer, you'll get a notice letting you know whether or not your employer is getting a rebate. If a rebate is due, it will go to your employer and they can use the rebate to lower future premium rates or give each enrollee part of the rebate amount.
If you have individual coverage, and the insurer doesn't meet the medical loss ratio, you may get a credit for your next premium payment, or you may get a refund.
How is the rebate calculated?
The rebate is based on rules from the government. Insurers take the amount they paid in medical care and quality programs and divide that by how much money they earned in premiums. This does not include what insurers pay in state and local taxes. The amount left over is given out equally to members or employers.
If I get a rebate, how does it affect my taxes?
You should talk with an accountant or tax professional to see if a rebate affects your taxes.
If I get a rebate this year, does that mean my premium will be lower next year?
No, rebates are based on past costs, and premiums are based on future costs. There are many factors that contribute to premiums, such as consumer demand for services, the rising medical and prescription drug costs, and advances in medical technology.