Affordable Care Act Insurers Could Be On The Hook For $1.1B In Rebates This Year

Dive Brief:

• Health insurers are poised to pay back $1.1 billion in excess revenue from the Affordable Care Act markets to individuals and employers that purchase the coverage, according to new data from KFF. If the rebates come through as expected, it would make 2024 the fifth year in the past decade that rebates have crossed the billion-dollar mark.
• Payers that peddle ACA plans agree to pay rebates if they don’t spend enough on patient care, as measured by a metric called the medical loss ratio, or MLR.
• Nearly $12 billion in rebates have been issued since 2012, KFF said in its report published Wednesday.

Dive Insight:

MLR measures the amount of premiums that health insurance companies spend on clinical services and quality improvement. Insurers in the individual and small group markets have to notch an MLR of at least 80%, while those in the large group market have to reach a higher 85% threshold. If not, they have to pay back rebates.

In crafting the ACA, lawmakers set up the rebate system as a backstop to prevent insurers from gaming the plans for financial benefit. Since insurers set premiums one year in advance, if they overestimate medical costs and set premiums too high, rebates prevent them from keeping all the difference as profit.

However, the rebate arrangement isn’t universally popular. Some free-market advocates argue the MLR rule incentivizes payers to increase their premiums, while other stakeholders have aired concerns about subsidized enrollees profiting off the coverage. Since rebate checks are based on a plans’ full cost, enrollees that receive financial assistance may receive a higher rebate than what they paid for their plan.

Health policy think tank KFF analyzed preliminary data from insurers to estimate rebates for 2024. Rebates are based on a three-year average, so rebates paid this year are comprised of insurers’ financial information from 2021 through 2023. 

Rebates were first sent to consumers in 2012, based on marketplace performance in 2011 — the first year of the individual market, before many of the ACA’s provisions had taken effect. Rebates have trended up since as more consumers join the exchanges, but spiked after 2017 and 2018, after payers increased their premiums drastically those years.

This year’s rebates are shaking out to be similar to those in 2022 and 2023, but fall well short of rebates issued in 2020 and 2021 during the height of the coronavirus pandemic. Many Americans delayed medical care due to COVID-19, resulting in fewer claims and sending insurers’ profits skyrocketing. Rebates also grew as a result, researchers say.

KFF stressed final rebates could be higher or lower than its estimate. Last year, for example, researchers said payers were set to issue $1.1 billion in rebates, but they only ended up shelling out about $947 million.

Rebates in the billion-dollar range seem like a windfall for members of ACA plans. However, most people don’t receive rebates, as the majority of plans normally meet or exceed the MLR threshold. Last year, rebates were issued to roughly 5.8 million people of the 18 million purchasers of marketplace plans that year.

And the rebates pale in comparison to payers’ recent profits. One insurer alone — market giant UnitedHealth — brought in profits more than twenty times above the estimated rebate burden of all insurers last year.

Despite ongoing political turmoil over the ACA, insurers have invested heavily in building out their plan offerings as more Americans turn to the exchanges for coverage.

ACA coverage reached a record 21.3 million people by the end of open enrollment earlier this year, thanks to more generous premium subsidies for the plans. In addition, people losing Medicaid coverage as states continue rechecking eligibility for the safety-net insurance program has driven growth in the ACA rolls.