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Insurance rebates soften up some who doubt health care law

Lucia Harkenreader’s check landed in her mailbox last week: a rebate of $456.15 from her health insurance company, with a letter dryly explaining that the money came courtesy of the federal health care law.

“It almost looked like junk mail,” said Harkenreader, a tax accountant in Mountain Top, Pa., who said she did not love the overall law but was pleased at the unexpected windfall. “If this is part of Obamacare, I’m happy that somebody is finally coming down on the insurance companies and saying, ‘Look, let’s be fair here.”’

The law requires insurers to give out annual rebates by Aug. 1, starting this year, if less than 80 percent of the premium dollars they collect go toward medical care. For insurers covering large employers, the threshold is 85 percent.

As a result, insurers will pay out $1.1 billion this year, according to the Department of Health and Human Services, with an average rebate of $151 per household. The highest average amounts are going to people in Vermont ($807 per family), Alaska ($622) and Alabama ($518). No rebates will be issued in New Mexico or Rhode Island, because all the insurers in those states met the 80/20 requirement.

Although the percentage of insurance companies that owe rebates this year is relatively small, about 14 percent, many giants of the industry are on the list. They include Aetna, Cigna, Humana and UnitedHealthCare.

President Barack Obama is highlighting the rebates as a tangible early benefit of the controversial legislation; on the day the Supreme Court upheld the law as constitutional last month, he said millions of Americans would see rebates because their insurance companies had “spent too much on things like administrative costs and CEO bonuses, and not enough on your health care.”

So is your check in the mail? Don’t count on it.

Self-insured employers, which cover more than half the nation’s workers, are exempt from the new rule, as are Medicare and Medicaid. And of the 75 million people in health plans subject to the rule, only about 17 percent, or 12.8 million, will see a rebate this year, according to the Obama administration. Many who buy coverage directly from insurers, like Harkenreader and other self-employed people, are receiving checks. But in most cases rebates are being sent to employers, who can choose to put them toward future premium costs instead of distributing them to workers. “I’ve been trying to explain that to people — that very few people would be getting a check,” said Timothy S. Jost, a law professor at Washington and Lee University who is an expert on the health care law.

Still, Jost and others say the rebate provision could prove a potent selling point for a law that remains unpopular with many Americans, not to mention a well-timed tool for the Obama re-election campaign. Premiums — and anger toward insurance companies — keep rising: the cost of employer-sponsored family health plans jumped by nine percent last year to more than $15,000, according to the Kaiser Family Foundation.

For Harkenreader, 53, who is putting a son through college, the rebate helps soothe the frustration she feels toward her insurer, Golden Rule, which is owned by UnitedHealthCare.

“It seems like the health insurance companies really just don’t have any consideration for the cost out here,” said Harkenreader, who pays about $480 a month for a high-deductible plan, up from $400 last year. “What costs have gone up to justify that rise in premium? I’d love to know. Did you give your people a raise? I guess your light bill went up?”

Jost said he had heard “quite a bit of anecdotal evidence of insurers giving really low premium increases this year” — a sign that the rebate rule might already be having an effect. (This year’s rebates are based on the share of premiums that went to administrative costs in 2011.)

Amber Wagner, in St. Peters, Mo., said that in addition to a rebate of $143, she had gotten word from her insurer, Anthem, that her premium rate would drop starting next month.

“It does make sense,” Wagner, 29, said of the rebate rule. “Why should they get to spend all this money on advertising and lining the pockets of people who own the company and make me pay more?”

Insurance companies say the rebate requirement does not address swiftly rising medical costs, which they say are the main reason premiums keep going up.

“Placing an arbitrary cap on administrative costs is going to do nothing to make health care more affordable,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, the industry trade group. “There’s a lot of misinformation out there.”

Critics also say the rule could drive insurers with high administrative costs out of some markets if they are not given more time to meet the 80/20 standard, potentially leaving customers in the lurch. That concern factored into a decision by the Department of Health and Human Services to allow insurers in several states to spend a higher portion of premiums on overhead for now. Those states are Georgia, Iowa, Kentucky, Maine, Nevada, New Hampshire and North Carolina. Eight other states sought but were not granted a reprieve.

Employers can put the rebates toward future premium costs, share them directly with workers or use them to enhance benefits. Insurers also have the option of directly reducing future premiums instead of sending out rebates.

In Kentucky, the Floyd County commissioners voted last week to distribute the county’s rebate of $169,748.78 from Humana directly to county employees as a midsummer surprise. The 260 employees will each soon receive checks, although Stephen Bush, the board president, said the amounts have yet to be determined. Those who paid higher premium costs will probably get more, he said.

“It’s probably been five, seven years since they’ve gotten a raise,” Bush said. “If they want to use it for premiums, they can. But if they’re living paycheck to paycheck or it’s a difficult time, they have that opportunity to use it for whatever they want.”

Robert Blendon, a professor of health policy at Harvard, said that while the rebates might win over some opponents of the health care law, they were too limited to have much impact. Polls have found that most people believe the law will drive premiums up.

“My view is the number is too small,” Blendon said. “Most people have already come to some judgment about the law and they are moving on to other things.”

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