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Hawaii consumers will not share in $1.3B in insurance refunds

By Star-Advertiser & news services

LAST UPDATED: 10:30 a.m. HST, Apr 26, 2012

Consumers and businesses in every state but Hawaii are expected to share in $1.3 billion in rebates from health insurers under President Barack Obama's health care overhaul, a Kaiser Family Foundation analysis found.

The rebates will amount to anywhere from a few dollars to more than $150 for about 15 million consumers nationwide, the new report  found.

The insurers spent more on administrative expenses and profits than allowed by the Affordable Care Act, according to the Kaiser analysis.

The largest checks based on the national average, $127 each, will go to consumers and employers in Texas ($186 million) and Florida ($149 million). Texas Gov. Rick Perry and Florida Gov. Rick Scott have been among the staunchest opponents of the federal law. Both states applied for waivers from the 80-percent requirement and were turned down.  

Obama's health care law requires insurers to spend a minimum portion of customers' premiums on medical care, a provision championed by consumer groups concerned that companies were hiking premiums to pay for executive salaries, shareholder dividends and other expenses unrelated to their customers' care.

Starting last year, if insurers did not meet these targets — known as medical loss ratios — they had to pay rebates this year to people enrolled in their plans.


Hawaii is the only state where no one will receive a rebate, Kaiser said.

"Hawaii is unique in that its market is dominated by two nonprofit insurers, both of which were already in compliance with the law," said Cynthia Cox, a fellow with the Kaiser Family Foundation and a co-author of its report.


HMSA and Kaiser already "had relatively low administrative costs, relative to national averages," she said.

Hawaii did not have a medical loss ratio requirement in place before the law took effect, according to Cox's research. Insurers may have structured premiums around the MLR requirement, "so in that case, there may be consumers benefitting by paying lower premiums," though they may not get rebates.

Nationwide, the largest checks will go to people who don't have insurance through their employer and instead buy coverage on their own, Kaiser said. People employed by large companies will receive rebates averaging about $14 each, the foundation said. Insurers will pay those rebates to the companies, not to individuals.


The Kaiser study, which analyzed rate documents filed with state regulators nationwide, found 486 health plans nationwide that will be required to pay rebates,

Nearly a third of all consumers in the so-called individual market, which is widely seen as the most trouble-plagued in the country, will be eligible for a rebate.

About a quarter of consumers in the small group insurance market and less than a fifth of consumers in the large group market qualified for rebates.

The study found wide variation in states, with insurers selling individual health plans in some states such as Alaska, Maryland and Pennsylvania required to provide average rebates of around $300. In Hawaii and Maine, by contrast, no insurers in the individual market will have to provide rebates.

The insurance industry says consumers should take little comfort from the rebates, because the companies expect premiums to go up overall as a result of new benefits and other requirements of the new law.

"The net of all the requirements will be an increase in costs for consumers," said Robert Zirkelbach, spokesman for America's Health Insurance Plans, the main industry trade group. 

"Given that health care costs are inherently unpredictable, it's not surprising that some plans will be paying rebates to policyholders in certain markets," Zirkelbach added. 

But backers of the rebate requirement say it will keep the industry from padding its profits at the expense of unwitting consumers. They say an efficiently run insurer should not have any problem earning a healthy return after devoting 80 percent of premiums to medical care. Indeed, the law sets an 85 percent requirement for plans that serve large employers.

"Millions are benefiting because health insurance companies are spending less money on executive salaries and administrative costs, and more on patient care," said Sen. Jay Rockefeller, D-W.Va., a leading advocate of the rebate provision.

Here's how the rebates break down nationally:

More than 3 million individual policyholders will reap rebates of $426 million. Consumers in Texas, Oklahoma, South Carolina and Arizona are most likely to be eligible for the payments, due starting in August, from 215 insurance plans that did not meet the standards in the law.

In the small-employer market, plans covering nearly 5 million people will receive rebates totaling $377 million. 

The study found that plans in the large employer market were more likely to be in compliance with the law's requirement. Nonetheless, 125 plans covering 7.5 million people reported to state regulators that they will give back a total of $541 million. 

The report says the rebates are only one of the ways in which consumers may benefit from tighter scrutiny of the health insurance industry under the federal law, which provides funding for state regulators to monitor the companies more closely. Self-conscious insurers may be hesitating to push state regulators for premium increases as large as they were able to win in the past.

"This 'sentinel' effect on premiums has likely produced more savings for consumers and employers than the rebates themselves," the report said.

Close scrutiny of the insurance industry won't solve the problem of rising health care costs, the report acknowledged, but it "can help to ensure that consumers and businesses get greater value for their premium dollar."

The numbers in the report are estimates. Final totals won't be issued by the federal government until early summer. 

Seventeen states applied for waivers from the 80-percent standard, producing evidence that it would destabilize their private health insurance markets. Federal regulators granted adjustments to seven states, usually meeting each state's request part way.

The future of the rebate requirement is uncertain, pending a decision by the Supreme Court on the constitutionality of Obama's law.


Star-Advertiser reporter Erika Engle, the Associated Press, Bloomberg News and McClatchy-Tribune news service contributed to this report.

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