Don’t toss that envelope from your insurer. It could be a rebate check. Here’s why.
The other day I received an envelope from my health insurance provider in the mail. Typically these are either an Explanation of Benefit (EOB) form or a (large) invoice indicating my next premium payment is due. This time however, what I found inside nearly gave me palpitations; it was a check made out to me from the insurance company. At first I assumed this had to be an error, until I remembered an important provision of The Affordable Care Act that could result in you, too, getting a check in the mail.
Why You Could Get a Healthcare Rebate
Why Are We Getting Checks?
The Affordable Care Act (ACA) requires that health insurance companies spend a certain percentage of the premiums they collect from policyholders on medical care and quality improvement activities. This amount, which varies depending on several factors, is called the Medical Loss Ratio (MLR). If an insurance company does not meet their MLR, that is, if they don’t spend enough of their premium income as instructed, then the ACA requires the insurance company to offer a rebate to their policy holders. The aggregate rebate is the difference between what the insurance company actually spent on medical care and quality improvement activities and their MLR. While the MLR does not change, the amount of an individual’s rebate will change depending on the insurance company’s revenues and expenditures. It’s important to note that the rebates are calculated at the state level. If you live in Florida then the MLR and rebates will be determined for policy holders who live in that state.
How It Works
Let’s say that Acme Insurance Company has an MLR of 85 percent and collected $100 million in premium income from policy holders living in your state. The law requires Acme Insurance Company to spend $85 million (85 percent x $100 million) on medical care and quality improvement initiatives. But Acme Insurance Company spent only $75 million. This means that they must offer their policy holders an aggregate rebate of $10 million or 11.76 percent ($10 million / $85 million) of the premium income collected. If you are a policyholder and paid $12,000 in premiums, then you would be entitled to a rebate of $12,000 x 11.76 percent, or $1,411.20.
What You Can Expect
Since the first rebates were issued at the beginning of August, a little over $1.1 billion in checks have gone out. The average rebate is not as large as in the simple example provided above. They are generally below $200 per person. If you purchase an individual policy, like most entrepreneurs and small-business owners, then the rebate check goes directly to you. But if you work for a company that provides your health insurance through a group policy, then a consolidated rebate check was sent to your employer and it is their responsibility to allocate it correctly among their employees. In some cases instead of issuing a check, they will instead offer it as a credit towards your next premium payment or payments.
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