A refund from your health insurace company?


If current health insurance spending remains steady, there’s a good chance many Minnesotans will see a refund from their insurers when a new provision in the federal health care overhaul kicks in January 2011. 

Championed by Minnesota’s own DFL Senator Al Franken, the proviso states that insurance companies are required to spend 85 percent of premiums directly on health care for large-group markets, which are companies buying insurance for 50 or more employees.  That threshold is 80 percent for small- and individual-group markets.  The other 15 or 20 percent can be spent on things like overhead, executive salaries, dividends for shareholders, marketing, and other non-care related expenses.  This relation of direct health care spending to administrative spending is called the Medical Loss Ratio (MLR).

If the company does exceed these MLR limits (i.e. spends more on administrative costs than the 15 or 20 percent limit), then it must refund the difference to its customers.

Based on a recent Minnesota Department of Health (DoH) report detailing health insurance providers’ administrative costs, the 52 companies selling insurance to Minnesotans spent on average 8.1 percent of their total costs on administrative duties.  In all, numbers ranged from a low of 1.4 percent to a high of 35.7 percent.

At least 14 Minnesota insurers (a little more than a quarter) currently have administrative costs exceeding the MLR, which means their customers would likely qualify for refunds.

The reason it’s only likely is that federal insurance regulators are currently working to define what counts as a direct health care expense (e.g. does a nurse hotline count?).  It’s certainly possible that federal regulators will define the term differently than the Minnesota DoH.

There are some concerns about the effect a regulated MLR will have on health insurance.  As Bob Laszewski, president of Health Policy and Strategy Associates, says, “The easiest way to have a high medical loss ratio is to let your medical costs soar.”  Theoretically, however, there are provisions in the Affordable Care Act requiring insurers to justify large premium increases to both state regulators and the U.S.  Secretary of Health and Human Services to prevent such an accounting maneuver.

If implemented correctly and responded to appropriately by health insurance companies, Senator Franken has done Minnesotans and all Americans a favor in helping keep our rising health insurance costs in check by making sure our health insurance money is spent on health care itself.