Obamacare insurers are likely to refund as much as $1 billion to consumers in 2019 as a result of earlier overcharges. And in 2020 those payments, which would come around the time of the presidential election, could reach $5 billion.
That is the assessment of analysts who follow health insurers’ claims payments. The 2019 refunds, made under the Affordable Care Act’s “medical loss ratio” requirement, will probably average about $200 per individual or about $600 for a family of three, blog writer and ACA supporter Charles Gaba said in an interview.
Even as the Obamacare marketplaces show signs of stability with moderating premiums and increasing insurer participation in 2019 and 2020, the rebates also reflect the uncertainty that has surrounded ACA policies—including changes made during the Trump administration—since the law’s inception in 2010.
Under the ACA’s medical loss ratio requirement, insurers must spend at least 80% of premiums in the individual and small group markets on medical claims or quality improvements. If they spend less than that, they must refund the difference to consumers.
The refunds, made in the fall, cover health plans’ medical loss ratios for the previous three years. So, the refunds consumers receive this fall, which could be in the form of credits for future premiums, will cover 2018, 2017, and 2016.
The rebates must be issued by Sept. 30. A spokeswoman for the Centers for Medicare & Medicaid Services, which oversee the Obamacare markets, said the agency expects to release the most recent data “in the coming months.”
For 2017, insurers paid a total of $706 million, according to data compiled by Gaba. Between 2012 and 2016, total payments ranged from $332 million to $519 million.
‘Confusion and Uncertainty’
The rebates are largely the result of overcharges in 2018, when most insurers raised prices on some plans to make up for the Trump administration withdrawing payments to cover subsidies for low-income people. Premiums went up sharply in 2017 as well, but those increases are attributed mainly to insurers correcting previous undercharges that didn’t cover their costs for exchange coverage.
“In 2017 and 2018 there was a tremendous amount of confusion and uncertainty,” Gaba said. In 2017 premium rates for individual coverage rose an average of 28%, and in 2018 they rose 31%, he said in a blog posting.
Among the actions taken by the Trump administration that “caused tremendous confusion” was the October 2017 decision withdrawing payments to insurers to cover cost-sharing subsidies that insurers are required to provide to low-income people, Gaba said. “A lot of carriers scrambled” to figure out what to do, he said.
In addition to raising premiums on some plans to cover the cost of the lost federal payments, many insurers raised premiums more broadly as well.
“They over-estimated in some cases,” Gaba said. “Now they’re basically correcting for that.”
The CMS defended the actions of the Trump administration, which have been roundly criticized by Democrats and ACA supporters.
“The Trump Administration inherited a chaotic individual market,” a CMS spokesman said in an email to Bloomberg Law. In 2017 many insurers left the market after premiums had more than doubled since before Obamacare’s regulations took effect in states using the federal HealthCare.gov exchanges, the spokesman said.
“We’ve taken a number of important steps to promote stability and promote more affordable choices. As a result, premiums actually dropped this year and we’re seeing issuers come back to the market,” the spokesman said.
“Critics’ predictions that our actions would undermine the Obamacare market have clearly not materialized,” the spokesman said.
Reaction to Loss of Payments
Most insurers reacted to the loss of cost-sharing reduction (CSR) payments by raising premiums on silver tier plans. Premium subsidies are based on some silver tier plans, so the end result was larger subsidies for moderate income people who qualify for them.
“The CSR defunding made the market more attractive” to consumers who qualified for subsidies, Greg Fann, a consulting actuary with Axene Health Partners LLC of Temecula, Calif., said in an interview.
Insurers overreacted to the loss of the payments by raising rates too much in 2018, Fann said. In addition, they overestimated the impact of losing customers due to the repeal at the beginning of 2019 of the requirement that all individuals have health coverage, he said.
“They clearly overpriced for 2018,” said Fann, a fellow of the Society of Actuaries.
Likely Rebate Candidates
Insurers that face the least competition—and therefore are the most able to raise rates—appear to be facing the biggest rebate payments.
“Rural insurers with large monopolies and huge price increases in ’17 and ’18 are the most likely to have large rebates,” David Anderson, a research associate with Duke University’s Margolis Center for Health Policy, said in an interview. “Insurers in competitive markets are less likely to have large rebates.”
Among the companies likely to be sending out sizable rebates in 2019 is Capital BlueCross, based in Harrisburg, Pa., which expects to issue rebates totaling about $20 million, according to a company spokeswoman.
Premera Blue Cross Blue Shield of Alaska will pay $5.9 million to Alaskan consumers, Alaska Division of Insurance director Lori Wing-Heier said in an email. If the company continues to have a favorable financial experience in 2019, it will likely have to provide rebates in 2020, she said.
Premera, based in Mountlake Terrace, Wash., had slight premium increases in 2017 followed by a 22.4% decrease in 2018 and a 6.5% decrease in 2019, Wing-Heier said. In 2017 Alaska began a reinsurance program, which reduced premiums in the state by providing payments to insurers to cover high-cost claims.
Blue Cross and Blue Shield of Oklahoma, owned by the Health Care Service Corp., will pay rebates totaling $3 million in 2019 for the individual market and $10 million for the small group market, Mike Rhoads, the deputy commissioner of the Oklahoma Insurance Department, said in an interview.
The carrier was the only Obamacare insurer in the state in recent years, covering the entire state, until Medica joined the market in 2019, he said. In 2020 Bright Health will offer coverage in the Oklahoma City area.
In 2017 Oklahoma experienced rate increases of 40% to 50% in order to prevent health insurers from losing money, Rhoads said.
Health plans in the area “were hemorrhaging money” at that time, and “they had to right the ship,” he said.
Premium increases in 2018 there were more moderate, Rhoads said, and Blue Cross Blue Shield of Oklahoma’s individual market medical loss ratio for the 2016-2018 period is 79.3%, just below the 80% threshold.