Millions in Rebates Doled Out to Insured Texans

As if perfectly cued to election season, multimillion-dollar rebates are being doled out across America by insurance companies thanks to a new rule in the federal Affordable Care Act, or ACA. Although the much-maligned “Obamacare” remains a prime target for Texas Republicans on the campaign trail, Democrats and other political consultants say the tangible benefits of the ACA now taking effect could change voters’ perspectives on President Obama's signature legislative package. 

“The hardest part politically for ACA has always been that it will take a while for the program to kick in and even longer for people to realize benefits,” Mark McKinnon, a political consultant and former media strategist for George W. Bush, said in an email. “These rebates will be a welcome surprise to a lot of consumers and help reduce angst about ACA.”

The federal government estimated that Texas policyholders could expect nearly $476 million in rebates over the next three years, based on 2010 insurance data. Consumers Union estimates that Texas will receive the most rebates of any state: $166.9 million in 2011, which includes $134 million to individual policyholders, $18 million to large employer policyholders and $14 million to small-employer policyholders. 

“There are bigger insurance markets, but we just don’t have that kind of oversight at the state level that would prevent people from overpaying,” said Stacey Pogue, a senior analyst at the left-leaning Center for Public Policy Priorities. “Now we have some kind of oversight at the federal level that will help people get more value.”

The “medical loss ratio,” or MLR, rule in the ACA requires health insurance companies to devote 80 percent of premiums from individual and small-employer plans and 85 percent of premiums from large-employer plans directly to health care services or efforts to improve health care quality. Spending on overhead costs — such as administration, executive bonuses or profits — that exceeds the MLR ratio must be rebated to the consumer by the end of the fiscal year.

Democrats and other supporters of the MLR rule argue that it holds insurance companies accountable for rising premium costs and gives companies an incentive to spend consumers’ money wisely. Politically speaking, they argue that the MLR rule and other provisions of the ACA that are about to kick in — like standardized summaries of what’s offered in insurance policies that health experts compare to nutrition labels — will continue to boost impressions of Obama's health care package during the presidential campaign.

"It's a sure bet that no one will refuse the rebate because they don't like Obama,” said Glenn Smith, director of the Progress Texas PAC, which supports Democrats in Texas.

Those on the other side of the fence argue that premium costs are rising because health care costs are rising — not because insurance companies are spending premiums poorly — and that the MLR rule could destabilize the insurance market by undermining profit margins, particularly at smaller insurance companies, and thus make it more difficult for consumers to find insurance coverage. 

Jennifer Cawley, executive director of the Texas Association of Life and Health Insurers, said she has already seen a few small insurance companies exit the insurance market in Texas because of the MLR regulations. "Individuals and small businesses already have a hard time gaining access to health insurance, finding the care that they need, and this is just going to make it harder," she said.

The Texas Department of Insurance, which has feared that the MLR rule could upset the Texas insurance market, applied for a waiver in July 2011 from the U.S. Department of Health and Human Services to phase in the MLR rule slowly, starting at a 71/29 MLR in 2011 and increasing the ratio by 3 percent each year until it reached 80/20 in 2014. 

HHS denied the insurance department’s proposal in January. In a letter to the state, HHS said that of the 34 health insurance providers in Texas, four were withdrawing from the market for reasons unrelated to the MLR rule, and a third of the remaining providers already met the 80/20 MLR standard.

Texas Democrats opposed the insurance department’s proposal; 15 Democrats in the Texas House and eight Texas Democrats in Congress sent letters urging HHS to implement the rule as scheduled. No Republican politicians in Texas submitted public comments on the department's proposal.

“It’s sad that Republicans are on the side of insurance companies instead of on the side of Texans on this issue,” said Rebecca Acuña, a spokeswoman for the Texas Democratic Party.

Pogue said she doesn’t believe the insurance department’s proposal to delay the reform was political. She also dismissed arguments that small insurers left the Texas insurance market because of the MLR rule, as it applies nationwide.

At this point, “anything that’s attached to the Affordable Care Act is a partisan issue,” she said. “This is going to be the first really tangible benefit of the ACA for a whole lot of people.” 

The MLR rebates for 2011 must be distributed before Aug. 1. Blue Cross Blue Shield, the largest health insurer in Texas, has already begun cutting checks for customers. In a letter to one policyholder, the company said it “spent only 71.0% of a total of $1,054,029,473 in premium dollars on health care and activities to improve health care quality” for individual policies and, therefore, had enclosed a check for 9 percent of the policyholder’s premiums in 2011, nearly $300.

Overall, 8 percent of the company's 4.8 million policyholders in Texas will receive a rebate in the form of a check, premium credit or electronic fund transfer, said Ross Blackstone, a spokesman for Blue Cross Blue Shield of Texas. The MLR rule has not destabilized the insurance market in Texas, he said, adding the company met the MLR standard for the majority of its policies in 2011 with an average MLR of 85.9 percent.

“Having said that, we do not believe the MLR standards will affect or control rising health care costs, which are the underlying cause of higher premiums,” Blackstone said in an email, adding that the company supports placing greater emphasis on primary care, providing incentives for cost-effective health outcomes and “fundamentally changing how health care is delivered.”