By Ryan Biehle, Policy Associate

You should know what to expect when you buy insurance or get care – without sudden, unpredictable premium increases or hidden costs. This is especially important in a world where health insurance premiums have typically grown twice as fast as the average Coloradan’s wages. That’s why a report released last week by the U.S. Department of Health and Human Services brings good news for consumers. 

It sheds light on health insurance company costs and shows that over 150,000 Coloradans will receive insurance premium rebates totaling $11.5 million. Families who receive a rebate can expect an average of $134 in their pockets. Across the country, they’re also seeing billions in premium savings.

Why is this? Thanks to a provision under Obamacare, commonly known as the 80/20 rule governing the Medical Loss Ratio (MLR), insurance companies in the individual and small group markets are required to spend at least 80 cents of every premium dollar on patient care and health care quality improvement. This applies to insurers that sell plans to individuals or to small employers with between 1-50 employees. The large group market, in which employers with 50 or more workers can purchase coverage, is required to spend at least 85 cents of each premium dollar on these activities. Rather than the old days of insurance companies wasting consumers’ premium dollars on paperwork and administrative costs, these companies now must operate more efficiently or pay a rebate to consumers.

In 2012, Obamacare’s new MLR standard saved consumers nationwide $3.4 billion on premiums. This savings represents money they would have had to fork out if their insurer’s MLR did not improve from 2011. The upfront savings to consumers increased from the $1.5 billion saved in 2011. Put another way, premiums are lower than they would have been without Obamacare.

In addition to this upfront savings, consumers get rebates if their insurer does not meet the 80/20 rule. Coloradans received nearly $27 million in rebates in 2011, while the rebates declined to $11.5 million in 2012. At first glance this may seem like a bad thing. In actuality, declining rebates means consumers are getting more value for their premium dollar, they’re paying lower premiums upfront than they would have without Obamacare, and insurers are becoming more efficient.

Average rebates for Colorado families will range from $50 in the individual market to $235 in the small group market. The rebates are due to consumers by August 1st when they can expect to receive it in one of four ways, at the discretion of the insurer:

• A check by mail;
• Reimbursement to their credit or debit card used to buy insurance;
• Reduced future premiums; or
• If they have insurance through their employer, the employer will receive the rebate and must disburse it to benefit the employee. Such a benefit could include a lump sum rebate, enhanced benefits, or reduced premium share paid by the employee.

Click here to read the HHS Report.

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