Insurance companies will have to return more than $1 billion this year to consumers and businesses, thanks to a new requirement in President Barack Obama's health care overhaul, a report released Thursday concludes.
That's real money, says Larry Levitt of the Kaiser Family Foundation, which analyzed industry filings with state insurance commissioners. The law requires insurers to spend at least 80 percent of the premiums they collect on medical care and quality improvements -- or issue rebates to policyholders.
"This is one of the most tangible benefits of the health reform law that consumers will have seen to date," said Levitt, an expert on private health insurance. The nonpartisan foundation is an information clearinghouse on the nation's health care system, and its research is widely cited.
The report comes with a caveat. It lacks data on the nation's most populous state, California, because complete filings there were not available. Nonetheless, the analysis estimates that consumers and businesses in other states will receive rebates of $1.3 billion, in some cases in the form of a discount on next year's premiums.
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.
The study found the largest rebates will go to consumers and employers in Texas ($186 million) and Florida ($149 million), where Govs. Rick Perry and Rick Scott, respectively, have been among the staunchest opponents of the federal law. Both states applied for waivers from the 80-percent requirement and were turned down. Hawaii is the only state in which insurers are not expected to issue a rebate.
Here's how the rebates break down nationally:
More than 3 million individual policyholders will reap rebates of $426 million, averaging $127 apiece. 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.
Fly-speck 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.