Personal Finance

Here's how to get a piece of the $2 billion in health insurance rebates this year

Key Points
  • You're more likely to get a rebate if you have an individual policy or participate in a small- or large-group plan.
  • About 7.9 million individuals are expected to qualify.
  • Early estimates by insurers for whether their 2021 premiums will rise or fall have been all over the board.

Depending on your health coverage, you could see a rebate from your insurer in the coming months.

While such paybacks are issued yearly, the 2020 aggregate amount is anticipated to be $2 billion — about twice what it was last year, said Karen Pollitz, a senior fellow with the Kaiser Family Foundation.

"Insurer profitability has been on the rise and as a result it's expected that 2019 rebates could set a record this fall," Pollitz said.

A patient at Walmart Health
Source: Walmart

Generally, you're more likely to see a rebate if you have an individual policy (including through a state health exchange or the federal one) or participate in a small- or large-group plan. Many of the biggest U.S. employers choose to self-insure, which means their plans don't have to adhere to certain requirements placed on insurance companies. Different rules also apply to Medicare and Medicaid coverage.

The average rebate in 2019 was $208, although that figure was wide-ranging from state to state. In Kansas, for instance, each eligible person got an average of $1,359, according to Kaiser research. The average in Delaware was zero.

The group estimates that about 7.9 million individuals will be eligible for the rebates this year.

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Insurance companies that sell group or individual policies must adhere to a "medical loss ratio" that requires the insurer to spend no more than 20% of premiums paid by enrollees on administration, marketing, salaries and the like. The remainder, 80%, must be spent on health care costs and certain other expenses related to patient health. (Sometimes that ratio is 85/15.)

Each year, the ratio is calculated based on a rolling three-year average, Pollitz said. So the rebates this year are from 2017, 2018 and 2019. Insurers typically either send a check to policyholders or deduct the rebate from premiums (and send a check to individuals no longer enrolled but due a piece). 

There's also something else at play, however: Insurance companies aren't having a bad year, profit-wise. While they've paid out for claims related to treatment of coronavirus patients, they've paid far less than projected on claims related to elective medical procedures, Pollitz said.

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This means their ratio may be out of whack for 2020 — which would potentially cause even bigger rebates next year.

Or, insurers can take action this year to bring that ratio into line.

"For example, if they reduce their premium now, the [ratio] looks better," Pollitz said.

Already, many insurers have changed their cost-sharing structures to reduce the amount that their policyholders pay out of pocket, including through reduced premiums or waived copays, for example. In typical years, this type of mid-year shift on premiums is disallowed, but the federal government recently eased rules to allow it.

"The thought was that people who are struggling during the economic crisis would appreciate this relief and help some to maintain coverage they might not otherwise be able to afford," Pollitz said.

As for what could happen to your monthly 2021 premiums, early estimates by insurers have been all over the board — some have noted a modest decrease while others have pegged an increase in the double digits, according to Kaiser research. Basically, uncertainty persists in the industry.

Although the average of all the early estimates landed fairly low, "most insurers reserve the right to come back and amend their filings," Pollitz said.

"So it's really hard to say at this point what will happen," she said.

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