Insights from Gallagher’s Health & Welfare Consulting Practice

Early reporting from the Kaiser Family Foundation shows that private insurers are set to pay out $2.7 billion in Medical Loss Ratio (MLR) rebate dollars this year. This amount marks a substantial increase from the $1.3 billion paid out in 2019 and continues to set new records. The Patient Protection and Affordable Care Act (ACA) requires insurers to use 80% of the premium collected on claims (85% for large groups) and the remainder on administration, marketing and profit.  If an insurer does not meet these thresholds, they are required to offer a refund or rebate to policyholders. 

With knowledge of the early reporting, some employers, as well as their employees, may expect to receive sizeable rebates. However, a deeper dive into the breakdown of the rebates shows that the majority of rebates are coming in the individual market, not in the group benefit segment where employer clients are grouped for the purposes of rebate calculation. 

While final rebate reporting is not due to Centers for Medicare & Medicaid Services (CMS) until July with rebates to be paid out by the end of September, Kaiser Family Foundation published preliminary estimates in April based on premium data reported to states. This report shows that $1.97 billion of the rebate dollars will be in the individual insurance market and only $341 million will be rebated in the large group market.

It is crucial for employers to remember that this money is not equally divided amongst all large employers. Rather, the rebate amount is a function of the insurance carrier, the market segment, and the type of plan or product purchased. As an example, in the state of North Carolina, only one insurance carrier offered a rebate in 2019 and it was on a limited segment of their plan designs. Therefore, despite what the headlines may say, it is not expected that employers with insurance policies in the small or large group markets, or their employees, will receive a substantial increase in rebate dollars in 2020.  

Typically, insurance carriers communicate to consultants and clients before any of the reporting is made available through CMS. However, reporting for prior years can be referenced on the CMS website. Gallagher consultants stand by ready to help employers understand what may be coming to them by way of an MLR rebate.