The Affordable Care Act’s so-called “80/20 rule” forces insurers selling individual and small group plans to spend at least 80 percent of the premiums they charge consumers on actual medical care, rather than administrative overhead or profit (the threshold for large group market plans is even higher at 85 percent). That’s led to massive rebate checks from insurers who overcharged their customers.
Politico looked at the new government numbers to see where this summer’s rebates are headed, and found wide disparities. Washington state residents will see the largest rebates in the country, with 3,000 customers getting back an average of $512, and consumers in Massachusetts and Delaware will be getting back over $450 on average. In high-population states where insurers have far more customers, more Americans will get refunds — but by much smaller amounts, with 3.4 million consumers in New York, Florida, California, and Texas receiving an average rebate ranging from $71 to $132 this summer.
The large refunds for customers in Washington, Massachusetts, and Delaware underscores how plans in certain markets are far costlier than others due to a combination of profiteering and inefficient insurers that spend too much money on their administrative costs. And the biggest offenders in those states tend to be large, national insurance chains with high profit margins, according to more government data. AmeriHealth HMO has to give back almost $650,000 to large market plan holders; Coventry Health and Life Insurance (which has one of the most successful prescription drug plans in the United States) must return $440,000 to Americans on the individual market. In Washington, one insurance company — Regence BlueCross BlueShield — is responsible for almost the entirety of the state’s insurance rebates under Obamacare, returning $785,000 to individual plan owners.
Several of these companies, and especially BlueCross BlueShield, have requested lavish rate hikes in recent years despite the soaring profits they must be making, considering how much they’re being forced to pay back.
This isn’t a sustainable business practice — or at least it isn’t an efficient one. Insurance companies that gouge their prices will be subject to the 80/20 rule every year, so they’ll eventually lose any money they make off of charging their customers unnecessarily high premiums. That’s why many insurers on the individual market have already taken steps to lower their premiums. The Kaiser Family Foundation estimates that individual plan sellers lowered rates by $856 million in 2011 and $1.9 billion in 2012 to conform to the 80/20 ratio. Small and large market insurers may end up doing much the same by lowering their premiums or cutting down on their administrative costs by making their businesses more efficient — otherwise, they’ll have to keep sending Americans millions of checks, year after year.