By Beth Hawkins
If the recent U.S. Supreme Court decision didn't signal that at long last it's time to actually get to know the Affordable Care Act, then perhaps the appearance of a check in the mailbox will get John and Jane Q. Public's attention.
Thanks to a part of the reform authored and sponsored by Sen. Al Franken, DFL-Minn., 123,000 Minnesotans will soon receive a share of nearly $9 million in rebates from their health-insurance carriers. Checks will average $160 per family.
Nationwide, the wonkily named "medical loss ratio" provision will mean $1.1 billion in rebates for nearly 13 million Americans.
"There's a lot of great stuff in this law," Franken said in a release issued in the wake of the court's order upholding the ACA. "Health care will now be more affordable and accessible for millions of people in Minnesota and across the country. This is a good day for the people of Minnesota."
The medical loss ratio provision is just one of three strong parts of the ACA authored by Franken; the other two, the Value Index and the Diabetes Prevention Act, are complicated enough to merit parsing in another story.
All three patient-friendly provision are buried in the most controversial -- and complex -- piece of legislation of the junior senator's tenure. Between that complexity and the law's iffy chances of full implementation, few people have bothered to try to learn about its multiple measures.
Idea is to avert windfall
The much-discussed individual mandate -- the ACA's requirement that millions of healthy young people buy coverage -- will mean more money flowing into insurance-industry coffers. Some will be spent caring for people with expensive pre-existing conditions, of course. Franken's provision is designed to keep any dollars left over from becoming an inadvertent windfall for an industry that, in many markets, needs to slim down.
The medical loss ratio, or MLR, is insurance-speak for the portion of every dollar an insurance company pays out -- or "loses" -- in claims. Historically, the term has been used within insurance companies that are, say, formulating targets for profitability.
Franken's provision is based on a Minnesota statute that turned the MLR into a tool for guaranteeing the lion's share of each premium dollar is spent on patient care and not on things like administration, CEO compensation and marketing.
In 1993, the Minnesota Legislature enacted minimum thresholds for insurers doing business here; they must spend a minimum of 65 percent of premiums on patient care for individual policyholders and 75 percent for those in the small-group market. Both ratios increased by 1 percentage point each year until 2000, when they hit 82 percent in the small-group market and 72 percent in the individual market.
Today, MLRs in Minnesota average 91 percent, in part because so many insurers in this market are nonprofits.
Originally a stand-alone bill
Franken's federal legislation, which was introduced in 2009 as a stand-alone bill but was eventually incorporated into the ACA, requires individual and small-group policies to meet an MLR of 80 percent while large-group policies must hit 85 percent.
The measure went into effect Jan. 1, 2011, with the first ripples felt in other states. In some places, premiums fell 10 percent right away. In most places, insurers immediately began assessing everything from their own data-processing methods to brokers' fees, according to Congress' investigative agency, the General Accounting Office.
States that felt that immediate implementation of the MLR would wreak havoc on consumers -- say, by forcing one of only two companies in their marketplace providing individual coverage to stop issuing the policies -- could ask for waivers that would allow them to scaffold up to the 80/20 rate much in the way Minnesota insurers did in the "90s. The few that did must now meet the ultimate ratio.
Insurers' first full, yearlong reporting period ended June 1. Companies that owe rebates will be required to issue them Aug. 1.
Some rebates will be indirect
Policyholders who bought individual coverage can expect to get their rebates directly, while those whose coverage was purchased by an employer may instead see the amount applied to next year's premiums or in a few other narrowly defined ways used to hold down their health-care costs.
Regardless what type of policy they have, individual consumers will receive letters from their insurers explaining their MLR status and, if they are owed a rebate and it is going to their employer, how the process of using it to the policyholder's benefit will work.
In Minnesota, no small-group rebates will be issued. Almost 93,000 policyholders with large-group coverage will receive checks averaging $197 per family, while 30,000 individuals who bought their own coverage will get an average of $38 per family.
HealthPartners will return $6.8 million to consumers and employers, according to the state Department of Commerce. (More detailed records can be found on the department's website.)
Connecticut General Life Insurance Co. will rebate $1.7 million, American Family Mutual Insurance Co. $200,000, PreferredOne Insurance Co. $149,000 and Time Insurance Co. $140,000.
Average amount: $160
Checks will average $160, according to the U.S. Department of Health and Human Services, which has broken down the rebates by state and by type of policy.
According to the department, states with average rebates above $500 per family include Georgia at $811, Vermont with $807, Ohio at $783, Oregon at $777, Mississippi with $651, New York with $632, Alaska at $622, Alabama at $582, Illinois at $551 and Indiana with $503.
Ideally, there will be no future rounds of checks because insurers who do not meet the MLR threshold have an incentive to either lower premiums or provide more generous coverage.
Indeed, a study released in April by the health-policy think tank the Commonwealth Fund suggests that the rebates would have been even higher if they had been based on premiums charged in 2010, before insurers began adjusting in anticipation of the MLR provision.
"Nationally, consumers would have received almost $2 billion of rebates if the new MLR rules had been in effect in 2010," the group reported. "Almost $1 billion would be in the individual market, where rebates would go to 5.3 million people nationally. Another $1 billion would go to policies covering about 10 million people in the small- and large-group markets."
According to Commonwealth's calculations, rebates owed in Minnesota would have been substantially the same.
"Implementation of the medical loss ratio provision is a huge step toward ensuring consumers' premium dollars go to actual health care, not insurance company coffers," Franken said in a statement issued as the MLR rule went into effect. "Many health insurers spend as little as 65 percent of your premiums on care, and the rest goes to enormous CEO salaries, advertising, or wasteful administrative costs. These regulations will hold health insurers accountable and make sure consumers get more value for their money."