For the second year in a row, the tables have been turned on insurance companies, and they are the ones writing the checks! Rebates are back, thanks to medical loss ratio (MLR) requirements in the Affordable Care Act (ACA). Simply put, the MLR is a measure of what proportion of consumer dollars insurance companies use towards health care, and how much goes toward non-health related costs, including administration, profits, and marketing. A higher MLR is a good thing – it means a higher proportion of consumer dollars is going towards paying for the cost of care received under consumers’ health plans. As of January 1, 2011, health insurance companies must meet MLR requirements or pay rebates to consumers.

This year, rebates issued to consumers totaled to more than $500 million. This is approximately 55 percent less than rebates issued in 2012, which is actually good news. It means that more health insurers are abiding by the law and spending less on administration and profit. Lower rebates don’t mean less cost-savings; 77.8 million consumers saved $3.4 billion in up front premium costs in 2012. This effectively caps premium rates and results in fewer consumer dollars going towards overhead, red tape, and bonuses for insurers, and more cash in consumers’ pockets. We hear gripes everyday about the unmanageable rising health care costs in the US, and the MLR is tangibly lowering those costs across the board.

Still, 8.5 million consumers will be receiving funds back from their insurance companies this year. Across the country, families will receive an average of $100 in their pockets from their insurance providers. California and Florida alone will be issuing well over $100 million in rebates this year. See this table for more state-specific stats, and click here to see how individual insurers performed.

Insurers have made significant strides in abiding by the MLR rules. Arkansas will be issuing zero rebates to consumers this year, meaning all insurance companies in the state have abided by the MLR regulation. Maine, Rhode Island, Hawaii, South Dakota, and Vermont will issue no rebates to consumers in the individual and small group markets. North Dakota will issue no rebates to consumers in the small group and large group markets, and Virginia will issue no rebates in the individual and large group markets. This indicates the MLR rule is an effective incentive for insurance companies to change their practices and spend consumers’ money on consumers.

No matter how states performed, this rule is a win for the ACA, individuals, and families. Consumers benefit from the MLR rules in two ways: premium rates are reflective of the actual cost of providing health care, and, when insurers spend too much money on overhead and bonuses, consumers receive that money back in in the form of a refund. For small businesses and all Americans who expect to receive value for health care dollars spent, these numbers indicate that health insurers are finally being held accountable for delivering value and keeping prices manageable. For too long, the insurance industry has gotten away with putting profit above consumer value. The $5 billion saved since the MLR standard’s inception puts an end to this practice and makes the American health system stronger.

Rebates are set to go out to consumers and group policyholders in mid-July through August. The success of the MLR rule is an opportunity for consumer advocates to aggressively publicize how the ACA is working to direct more dollars towards quality care provision rather than administrative costs, and lower sky-high health care bills. Let’s all keep our ears to the ground for stories of how these rebates and lower premiums are helping small businesses and individuals save money.

— Sarah Gordon, Private Insurance Team Intern