Health Insurance Navigator

By Lisa Zamosky

Most of us have grown accustomed to spending increasing amounts of our hard-earned cash to pay for health insurance coverage. But starting this summer, insurance companies will start sending some of that money back.

A provision of the health reform law requires insurers that spend less than 80% to 85% of the premium money they collect on medical services and quality improvement – as opposed to executive salaries, overhead, and marketing – to rebate the difference to employers or health plan members who pay for the coverage.

This rebate rule is in effect for the year 2011, with payments expected later this year. Plans are required to submit a report to the Department of Health and Human Services (HHS) each year showing how much they spent and on what. The first report is due by June 1, 2012.

What’s in it for me?

If your health plan didn’t spend at least 80% of the money it collected for insurance premiums on health care costs (called medical loss ratio) you’ll be getting back some of the money you paid for your coverage either in the form of a check or as a credit toward your insurance premium.

You’ll know if you’re due for a rebate by August 1^st of this year, when insurance companies are required to send plan members a letter letting them know if a refund is on the way.

The Cost of Overpayment

Just how much money might you expect? That’s not known for certain, but the Commonwealth Fund released a report just last week offering some indication of what’s to come.

In a state-by-state analysis, the report finds that if the insurance rebates had taken effect in 2010, consumers would have received a total of nearly $2 billion in rebates. Residents of Texas and Florida would have seen the highest amounts. For consumers who receive rebates, the report says, the average amounts could be in the $100 to $300 per person range, and occasionally more.

Nearly $1 billion, according to the study, would have been returned to 5.3 million people who bought coverage on their own (as opposed to those who got insurance at work). That represents more than half (53%) of all people nationwide who buy their plans on the individual insurance market.

In addition, about 10 million people, or 23% of those with an employer-based health plan, would have received a rebate if the rule had been in effect for 2010.

The report doesn’t say how much consumers can expect to see returned this year, but the estimates in the report offer some clues. It also points to the likelihood that going forward, insurers will be motivated to lower their rates or use more of the money we all pay each month for coverage on medical care so as to avoid having to rebate money to consumers.

What are your thoughts about health insurers having to refund money to consumers? Share your thoughts in the comment section below.