April 27th, 2012

Reports the Wall Street Journal:

An early picture of the effects of the requirement, one of the aspects of the health law that drew the most concern from the insurance industry, is emerging from new analyses based on estimates that insurers filed with state regulators.

The nonpartisan Kaiser Family Foundation, which calculated total rebates at $1.3 billion, says that around $426 million will go to people who bought their own health plans; $541 million will go to large employers; and $377 million to small businesses.

In a separate analysis based on the same filings, Goldman Sachs analyst Matthew Borsch estimated the total rebates at around $1.2 billion.

Insurers must tell the federal government this June exactly how much the rebates will be, and they are expected to go out by August. People with individual insurance may get rebates in the form of checks or discounts against future premiums. Rebates for group plans are expected to go to the employers, and a share is supposed to be passed through to employees.

The new requirement focuses on a figure called the medical-loss ratio, which represents the share of premium revenue that goes toward medical expenses. Under the law, insurers must spend 80% of premiums from individuals and small businesses, and 85% of those from large employers, on health-care claims and quality improvement efforts. The rest can go toward other things, including administrative expenses and profits.

If a health insurer doesn’t spend a large enough proportion on the health costs, it must give back the difference to customers.

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