May 14. 2012 9:00AM

Don't hold breath for health insurance rebates


By Andrew Weiland

Consumers and businesses in Wisconsin will receive about $16.8 million in rebates from health insurance companies that spent more on administrative expenses and profits than allowed by the federal health care reform Affordable Care Act, according to an analysis by the Menlo, Calif.-based Henry J. Kaiser Family Foundation.

However, some are questioning the report and say any rebates paid out by insurers will probably be relatively small.

Beginning this year, the Affordable Care Act requires insurance plans to pay out a minimum percentage of premium dollars toward health care expenses and quality improvement activities, limiting the amount spent on administrative and marketing costs and profit. Under the law, large group plans are required to spend at least 85 percent of premium dollars on health care and quality improvement. Small group plans must spend at least 80 percent.

However, most major health insurance carriers say they will not have to pay any rebates and any rebates that are paid will likely be small, according to Jon Rauser, president of Milwaukee-based The Rauser Agency Inc., a benefits management firm.

"None of the carriers that I have talked to expect to refund a penny," Rauser said. "At this point the loss ratios are within the targets."

The insurance market is competitively priced, and any insurer that charges an excessive amount to generate a higher profit would lose business to lower priced competitors, Rauser said. Health insurance companies have skilled actuaries who are able to use statistical analysis to predict the amount of claims that will be paid out to their customers, which helps them hit the payout targets, he said.

Small businesses, which are lumped in by insurers with thousands of other small companies, are the least likely to receive rebates because that grouping creates a large statistical sample for which claims can be accurately predicted, Rauser said. A few large employers may receive rebates, but most rebates will likely go to the individual market, he said. And any rebates will likely be small because if insurance companies miss their targets, it's unlikely they will have missed by very much, Rauser said.

"The actuaries know what they're doing, believe me," he said.

Insurers will have to pay a total of $1.3 billion in rebates nationwide, according to the Kaiser report. In Wisconsin, $2.59 million in rebates will be paid to 31,763 individuals who bought their own health insurance, $4.74 million in rebates will be paid to employers in the small group market with a total 167,008 people enrolled in their plans and $9.49 million in rebates will be paid to employers in the large group market with a total of 166,624 people enrolled in their plans.

However, J.P. Wieske, spokesman for the Wisconsin Office of the Commissioner of Insurance, said Kaiser's report is based on premature data.

"Kaiser's numbers are not accurate," Wieske said. "We don't know if they are exact or wildly inaccurate."

Rebates will be provided to employers and in some cases passed on to employees. Requirements vary under the Affordable Care Act. Government and church employers will be required to provide some of the rebate to employees in proportion to how much the employees pay for their health insurance. Private sector employers may also be responsible for returning a portion of the rebates to employees in some cases, said Cynthia Cox, a fellow with the Kaiser Family Foundation and one of the authors of the report.

The insurers will notify employers this summer if they are receiving a rebate. The funds will be distributed in August. In some cases, the rebates will come in the form of a check. In other cases it will come in the form of a discounted premium.

The constitutionality of the Affordable Care Act is being challenged in a legal case before the U.S. Supreme Court. The court ruling could eliminate the law and the rebates.

"It depends on how the court rules," Cox said.

"We may have a great big 'never mind' at the last minute," Rauser said.