Thanks to a provision of the Affordable Care Act, 16 million consumers and businesses are expected to receive about $1.3 billion in rebates from health insurance companies, according to the Kaiser Family Foundation. The medical loss ratio rule requires insurers to spend at least 80 to 85 percent of premiums on patient care; if not, then the companies owe rebates to their customers. As Health and Human Services Secretary Kathleen Sebelius explains, “We want to know that most of what we are paying for is for health care, not advertising, executive bonuses or overhead. It’s pretty simple: we want to get a good value for our premium dollars.”

The Kaiser estimates show that rebates add up to $541 million in the large employer market, $377 million in the small business market, and $426 million for those buying insurance on their own. Roughly one-third of people nationally who bought individual insurance plans can expect a rebate, but the percent of consumers expecting rebates ranges from almost zero in some states to 86 percent in Oklahoma and 92 percent in Texas. “This study shows that asking insurance companies to put more of their premium dollar towards patient care rather than administration and profits is not only popular but also effective,” said Kaiser President and CEO Drew Altman.

Insurance brokers unsuccessfully tried to block this regulation, and Florida officials asked the federal government for less stringent requirements that would have likely reduced the rebate amounts in that state. But if this rule had gone into place in 2010, 15 million people would have seen $2 billion in rebates that year.

By requiring everyone to purchase health insurance coverage in 2014, the Affordable Care Act provides millions of new customers to private health insurers. But the law also guarantees that companies don’t swindle premium dollars away on corporate profits and CEO bonuses. Under the law, insurers have to comply with a new Medical Loss Ratio or MLR, which requires that companies spend 80 to 85 percent of premium dollars on medical care and health care quality improvement, as opposed to administrative spending.

It’s a rule Republicans have sought to repeal and water down — repeatedly — but now, a new report from the Kaiser Family Foundation finds that “consumers and businesses are expected to receive an estimated $1.3 billion by this August in rebates”:

The rebates include $541 million in the large employer market, $377 million in the small business market, and $426 million for those buying insurance on their own. Rebates in the group market will generally be provided to employers, and in some cases be passed on to employees as well.Rebates are expected to go to almost one-third (31%) of consumers in the individual market. Among employers, about one-quarter (28%) of the small group market and 19% of the large group market is projected to receive rebates. The share of consumers in the individual insurance market expected to receive rebates ranges from near zero in several states to as high as 86% in Oklahoma and 92% in Texas.

Interestingly, residents in states that are challenging the constitutionality of the law — and seeking to dilute the MLR regulations — are benefiting the most from the provision. A back-of-the envelope calculation finds that states opposing the ACA received an Average Rebate per Individual Market Enrollee of $35.76 ($21.04 in the small group market), compared to $27.43 ($19.04 in the small group market) for those who aren’t. The states that went before the Supreme Court received a total of $320,082,038 in individual market rebates ($210,713,425 in the small group market).

ThinkProgress intern Zachary Bernstein contributed to this post.

About $2 billion in health insurance rebates would have been issued to over 15 million American consumers if the Affordable Care Act’s new medical loss ratio (MLR) rules had been in effect in 2010, a new study from The Commonwealth Fund reveals. The MLR rules, which were enacted in 2011, require a minimum percentage — ranging anywhere from 80-85 percent — of premium dollars to be spent on medical care and health care quality improvement, as opposed to administrative costs and corporate profits. The report, Estimating the Impact of the Medical Loss Ratio Rule: A State-by-State Analysis, estimates that had the MRL rule gone into effect a year earlier, the 5.3 million Americans with individual health insurance coverage would have received nearly $1 billion in rebates, while another $1 billion in rebates would have been awarded to the 10 million Americans with policies in both small and large group markets. Twenty-three percent of privately insured consumers in all markets would have received rebates.

Federal health officials estimate $323 million in MRL rebates for the first year (starting in 2011), “with the first round due to be paid by Aug. 1 this year, and each year thereafter.”

– Fatima Najiy

A key consumer benefit of President Obama’s health care reform law is the Medical Loss Ratio — a requirement that insurers spend 80 to 85 percent of premium dollars on health care, rather than administrative spending, and reimburse their customers if they fail to meet that standard. In June, Texas, under Gov. Rick Perry (R), requested a gradual adjustment of the MLR standard to 71 percent, 74 percent, and 77 percent for 2011, 2012, and 2013, arguing that immediate compliance would “likely to stifle competition in the market and constrain many Texans’ access to coverage.”

But 15 Democratic state lawmakers are questioning the need for the delay, since “12 of 35 individual insurance providers in Texas meet the 80/20 medical loss ratio” and a waiver would cost policy holders millions in rebates:

[Texas Department of Insurance] TDI estimates that Texans would receive $160 million in rebates or premium credit from individual insurance carriers in Texas in 2011 if providers are required to direct 80 percent of premiums to medical care and quality improvements. But if the adjustment is approved, and individual insurance carrier are only required to meet a 71/29 medical loss ratio in 2011, Texans would only receive $35.6 million in rebates.

Look:

A recent report from the Government Accountability Office (GAO) has also found that insurers are successfully meeting the MLR requirements by “reducing premiums in 2012,” not applying “for premium increases and are making adjustments to lower premiums as a strategy to increase their MLRs.” Most of the insurers are also reducing brokers’ commissions in an effort to lower administrative spending and meet the MLR benchmarks.

Texas consumers, meanwhile, already pay insurance premiums that are higher than the national average and the state suffers from the highest uninsurance rate in the nation.

On Monday, after months of negotiation and deliberation within the National Association of Insurance Commissioners (NAIC), the Department of Health and Human Services (HHS) issued interim-final regulations requiring health insurers to spend 80 to 85 percent of premium dollars on health care services. Insurers that fail to meet the new standards — called the Medical Loss Ratio or MLR — will have to issue rebates to beneficiaries.

The new rules have received mixed reviews from consumer advocates and insurers alike. Many of the nation’s largest insurance companies’ stocks actually “rose on the news Monday,” leading one analyst to speculate that the market was reacting to the end of a period of uncertainty for insurers, and that the regulations ended up “somewhat more positive than expected.” Indeed, the group Consumer Watchdog — an consumer advocates’ organization — argues that while “HHS deserves credit for resisting a lobbyist onslaught demanding more loopholes,” the agency “also left intact some of the industry’s chief goals, including over-broad tax deductions and loose definitions of ‘health quality improvements’ that will artificially boost the health care ratios (also known as medical loss ratios) of all insurers.” The group has identified the following problems:

1. Inclusion of public health marketing campaigns as “health quality improvements.” The NAIC proposal would allow insurance companies to count as health care certain marketing costs—such as anti-tobacco or anti-obesity messages—that are largely intended to improve a corporate image.

2. Excessive tax deductions. The proposed regulations would allow insurers to deduct almost all federal and state taxes, including income taxes, from their premium revenue before calculating the medical loss ratio.

3. Lack of transparency for administrative costs counted as “health quality improvements,” including: provider accreditation fees, prospective utilization review and telephone hotlines. Each of these activities is generally considered a cost-reduction, claims adjustment or administrative activity.

4. “Mini-med” plans: In a newly developed regulation, HHS announced a major exception to the MLR rules of so-called “mini-med” health insurance plans, which limit employee benefits to as little as a few thousand dollars a year. Such plans, mostly used in the retail and fast food industries, and for part-time employees, will be allowed minimum health care ratios as low as 40% (as opposed to the 85% level of conventional employee insurance). The exception is currently allowed for one year, and must not be allowed to continue beyond a year.

In a release issued on Monday, Sen. Jay Rockefeller (D-WV) expressed concern about the mini-med exemption saying, he was “disappointed that limited benefit ‘mini-med’ plans continue to seek exceptions from these standards,” but that “they should know that their requests will be subject to close scrutiny.” The Senator also announced that he would be holding hearings on the policies on Wednesday, December 1 at 2:30 p.m.

Hopefully, this will be the first of many. Regulators and Congress will have to keep a close eye on how insurers abide by the new standards to ensure that the industry doesn’t inflate its MLR numbers without actually delivering more efficient care.

This morning, the Department of Health and Human Services (HHS) announced that it will issue interim-final regulations requiring health insurers to spend 80 to 85 percent of premium dollars on delivering health care services, encouraging insurers to deliver care more efficiently and not raise premiums beyond the costs of health care services and quality improvement. Insurers that fail to meet the new standards — called the Medical Loss Ratio or MLR — will have to issue rebates to beneficiaries.

“In 2011, the new rules will protect up to 74.8 million insured Americans, and estimates indicate that up to 9 million Americans could be eligible for rebates starting in 2012 worth up to $1.4 billion,” the department says on its website. “Average rebates per person could total $164 in the individual market.” The interim final rule is based almost entirely on the recommendations of the National Association of Insurance Commissioners’ (NAIC) and is considered favorably by consumer advocates.

For instance, while the interim rule rebuffs the call of three powerful Democratic Committee chairmen to allow issuers to subtract only taxes that are specifically related to the Affordable Care Act before calculating their MLRs, it accepts the more consumer-friendly aggregation process that prevents insurers from masking the low MLRs of certain policies and does not consider services like anti-fraud and “utilization review” as “medical expenses.” (For more details click HERE or HERE.)

During a press conference announcing the new standards, administration officials and consumer advocates stressed the flexibility of the new regulations — particularly the one-year exemption for so-called mini-med plans. Employers who offer such plans to low-income, part-time workers like fast food restaurants and retailers have requested waivers from the agency, warning that they would have to stop offering coverage if required to abide by the MLR regulations. HHS officials argued that these rules will prevent that from happening:

SEBELIUS: The mini-meds have a different kind of formula and the decision that HHS in compliance of the rules suggested by the NAIC that we will collect data for the first year on mini-med plans and make a determination on the applicability of the MLR across the board.…And then applying a standard process to the mini-meds along with some substantial consumer notices along the way so they understand what they are not getting at this point is a fully comprehensive insurance plan

JAY ANGOFF: No one is going to lose their coverage, even if that coverage is not the best in some cases. No one is going to lose even that coverage because mini med carriers don’t report their data separately traditionally, we are requiring that data to be reported early and based on that data we will determine what happens in that first year.

Watch it:

Significantly, an across-the-board delay buys HHS a year of respite from any sudden coverage dumps by large employers like McDonald’s, responds to the GOP’s contention that the agency is arbitrarily granting waivers to certain applicants, and reiterates the administration’s message of regulatory flexibility.

During the press conference, NAIC consumer representative and Washington and Lee law professor Timothy Jost stressed that while the rule does not consider anti-fraud measurements as health care costs, it allows insurers to “offset funds that they spend on fraud recovery against money actually recovered,” meaning that if fraud efforts are successful, the insurers, will in fact get credit for it. He also argued that insurers will receive “full credit for money that they spend to improve patient outcomes, to prevent rehospitalizaitons, to encourage wellness and prevention, to prevent patient errors and protect patient safety and on quality related IT claims.” The rule “does provide appropriate treatment for different, smaller, and newer plans,” Jost said at the conference and explained that the Secretary would have the authority to adjust the MLR in certain states.

Politico’s Sarah Kliff and Jennifer Haberkorn are reporting that after six months of deliberations, the National Association of Insurance Commissioners (NAIC) have approved model regulations governing the all-important medical-loss ratio provisions of the Affordable Care Act. These regulations require insurers that don’t spend 80% to 85% of their premium dollars on health care to send refunds to their customers. The percentages are calculated from a ratio of “health expenditures” to other expenses and since reform became law, insurers have pressured the NAIC to include certain administrative expenses as medical costs, exclude all federal taxes from their revenue (the denominator in the MLR ratio), and allow insurers to aggregate the ratio across plans and markets — all in an effort to make it easier for the industry to meet the MLR requirements without actually spending more on health care.

The NAIC had already issued draft regulations which ignored many of these arguments, but in the days and moments leading up to the final vote, “Commissioners offered four ultimately unsuccessful, amendments: to remove brokers fees from the calculation and to aggregate spending calculations nationally rather than at the state level and two amendments related to giving insurers credits to help them reach the spending levels.” Despite the least minute activity and intense lobbying, “the proposed regulation moved forward unchanged”:

- TAXES: NAIC rejected the Congressional Committee chair’s statement that they only meant to allow issuers to deduct those taxes that are specifically related to the Affordable Care Act. It ruled that issuers can exclude all federal taxes but those on investment income.

- DEFINING HEALTH COSTS: NAIC rejected insurers’ suggestion that services like anti-fraud and “utilization review” be included in the definition of “medical expenses,” included other services that have not been traditionally classified as “medical,” and required issuers to substantiate why certain services improve care quality.

- AGGREGATION: Insures wanted the NAIC to calculate their MLRs across different units and markets. This would have allowed insures to group their plans together to mask the low MLRs of some of their plans. The draft guidelines would require issuers to break them down and account for the MLRs separately at every business unit in every state, preventing them from obscuring some low MLR plans.

- BROKER FEES: “The commissioners did approve a motion to appoint a subgroup to work with HHS on how to deal with issues related to broker and agent compensation. This compensation is currently categorized as an administrative expense; agent trade groups have pushed for their fees to be taken out of the calculation altogether. Brokers are nervous that their role will be greatly diminished if their fees are categorized as administrative spending.”

- CREDIBILITY ADJUSTMENTS: These address the normal statistical fluctuations that affect smaller and newer plans. In order to adjust for this, the NAIC considered introducing credibility adjustments based upon the size of an insurer’s business. The NAIC rejected moving from a 50% to a 80% confidence level on credibility adjustments, which would have given insurers a big break and made it easier for companies to meet the MLR.

The model regulation will now be delivered to Health and Human Services (HHS) for certification by the Secretary and consumer advocates I spoke too are fairly happy with the rule. “We are very proud of the NAIC this morning. Congress asked them to do a job and they did it with openness, integrity, and dignity,” W & L Law School Professor Timothy Jost emailed me in a statement. “Although we did not get everything we wanted in the MLR rule as consumers, we think the rule is fair, workable, and faithful to the law.” HHS Secretary Kathleen Sebelius has also issued a positive statement. “These recommendations are reasonable, achievable for insurers and will help to ensure insurance premiums are, for the most part, supporting health benefits for consumers,” she said. “Not only do they ensure consumers receive better value for their health care dollar, they recognize special circumstances in different markets to preserve market stability and employee coverage as we transition to the new marketplace in 2014. ”

However, HHS has already indicated that it would likely issue wavers to mini-med plans and other insurance plans that would be unable to meet the new requirements because of the way they are structured.

The National Association of Insurance Commissioners is inching closer towards defining the regulations that would require insurers to spend 80 to 85% of their premium dollars on health care. As The Hill reports, NAIC “approved model medical loss ratio regulations on Thursday” and sent Health and Human Services Secretary Kathleen Sebelius “a letter outlining several factors that need to be addressed as the guidelines are implemented.” Throughout the process, the key concerns have revolved around how to define medical services, which federal taxes can be excluded from the calculations, and whether or not companies can aggregate the ratios across different plans.

Insurers have waged a strong campaign to loosen the reporting requirements, leading Sen. Jay Rockefeller (D-WV) — who has led the charge in pressuring the NAIC to live up to the letter of the law and hold insurance companies accountable to its spirit — to write a letter to the NAIC urging the panel to “reject the health care industry’s eleventh-hour lobbying campaign to erode key consumer protections—protections that will help Americans finally get the care they pay for and deserve“:

In particular, the large for-profit insurers are asking you to ignore the plain-language definition of “health insurance issuer” in the ACA and other federal statutes, and allow insurers to aggregate their large group medical loss ratio data across state lines and business entities. As I discussed in my May 7 letter, allowing insurers to aggregate their medical loss ratio at a national level deprives the consumers of individual states of the new medical loss ratio law’s most important protections. Under the health insurance companies’ proposal, consumers in a state with medical loss ratios falling below the law’s new requirements would have no right to rebates, as long as the health insurance company’s overall national average remained above the law’s new requirements.

As regulators charged with implementing the ACA’s medical loss ratio provision, you have proceeded in good faith and through a transparent process to make sure that consumers and businesses get a better value for their health insurance premium dollars. Medical loss ratios aggregated at the state and entity level reflect the actual market conditions consumers and businesses in your state face when they are trying to buy health insurance. Insurance companies should not have the carte blanche to avoid paying rebates to consumers in states where they sell low-value plans.

The draft guidelines require issuers to break them down and account for the MLRs separately at every business unit in every state preventing them from obscuring some low MLR plans. The NAIC is preparing to vote and send their final recommendations to Sebelius sometime next week.

McDonald’s is denying reports that it plans to cancel health insurance for almost 30,000 workers unless federal regulators loosen requirements for plans to spend 80 to 85 percent of premium dollars on health care costs. “Media reports stating that we plan to drop health care coverage for our employees are completely false,” a McDonald’s spokesperson told Politico’s Pulse. “These reports are purely speculative and misleading.”

But according to the Wall Street Journal, a senior McDonald’s official informed “the Department of Health and Human Services that the restaurant chain’s insurer” won’t meet the new requirements, called medical-loss ratios (MLR), since they are “unrealistic” for the kind of mini-med plans the company provides to many of its hourly restaurant workers. The plans, which often restrict the number of covered doctor visits or impose a relatively low maximum on insurance payouts in a year, have “high administrative costs owing to frequent worker turnover, combined with relatively low spending on claims“:

McDonald’s, in a memo to federal officials, said “it would be economically prohibitive for our carrier to continue offering” the mini-med plan unless it got an exemption from the requirement to spend 80% to 85% of premiums on benefits. Officials said McDonald’s would probably have to hit the 85% figure, which applies to larger group plans. Its insurer, BCS Insurance Group of Oak Brook Terrace, Ill., declined to comment. [...]

“Having to drop our current mini-med offering would represent a huge disruption to our 29,500 participants,” said McDonald’s memo, which was reviewed by The Wall Street Journal. “It would deny our people this current benefit that positively impacts their lives and protects their health—and would leave many without an affordable, comparably designed alternative until 2014.”

The law allows companies to apply for exemptions from the MLR requirements — which are still being drafted — and HHS “says it has already given the carrier for McDonald’s and others the chance to seek exemption from new annual limits on benefit payouts.” “This story is wrong,” HHS spokeswoman Jessica Santillo told Pulse. “The new law provides significant flexibility to maintain coverage for workers. Additionally, this story is premature as guidance on the new medical loss ratio rules has not even been issued. The Administration is working closely with businesses like McDonald’s that are committed to providing health benefits to protect health coverage for their employees.”

Indeed, insurance commissioners met with President Obama last week to request that certain plans in the individual market be allowed several years to comply with the MLR standard and at least two states Maine and Iowa, have also “asked for a waiver from the rules until 2014 to give health insurers more time to adapt.” Exempting mini-med plans in order to protect the (limited) benefits of some 30,000 employees may make sense, particularly since these policies will probably end by 2014. Then, workers could enroll in more comprehensive health coverage through the Exchanges since mini-med plans would not meet the actuarial value of creditable coverage.

And as Aaron Carroll points out, that’s probably a good thing. After all, mini-med plans only work for healthy individuals and usually don’t provide enough coverage for anyone with a serious medical condition. “One of the things the ACA does is try and eliminate under-insurance. It tries to regulate the insurance companies so that you can’t get sold a plan that provides too little coverage when you need that. That costs money,” Carroll concludes.