Health insurers speed MLR rebates through premium discounts

A number of health insurers that are benefiting from the steep drop-off in claims for elective procedures and doctor’s visits have announced plans to return excess revenue to customers by reducing some members’ premiums in the coming months. The move could reduce the rebates that insurers’ may owe next year under an Affordable Care Act provision.

UCare, a not-for-profit plan in Minneapolis, Minn., said Monday that it will discount premiums by 20% in July and August for 146,000 commercial and Medicare members, which it hopes will help members who are struggling financially during COVID-19 pandemic and encourage them to seek needed care.

Another not-for-profit, Detroit-based Health Alliance Plan, said Tuesday it would cut monthly premiums by 5% for individual and small group premiums starting in July and continuing through the end of the year.

Their announcements follows similar commitments made earlier this month from insurers Premera Blue Cross, Priority Health and UnitedHealthcare. UCare and some other insurers are also waiving copayments for primary care and mental health services for certain customers.

Insurers’ willingness to offer premium discounts and other financial relief suggests they expect to profit this year from the widespread reduction in the use of healthcare services as medical practices limit non-urgent services and patients practice social distancing.

Large, for-profit insurers already indicated they expect to profit from the pandemic when they reiterated 2020 earnings guidance; still, they cautioned they could eventually see increases in claims for COVID-19 treatment and pent-up demand for services that were postponed.

The premium discounts are also a practical move. Health insurance experts expect that insurers will owe large rebates to members in 2021 to make up for overpricing health plans in the few years before. Offering premium discounts now is simply a way to speed up the delivery of those rebates to a time when members may be really struggling amid the economic slowdown.

Accelerating those rebates, which are required under the medical loss ratio provision of the ACA, would consequently lower the amount of rebates that the insurers pay out in 2021.

“We felt that giving our membership the premium discount now was more important than what might happen in the future, in part to encourage folks to get into the doctor’s office and to stay covered,” said Ghita Worcester, UCare’s senior vice president of public affairs and chief marketing officer.

Not-for-profit insurer Priority Health also said the reduction in the use healthcare services allows it to offer 15% premium credits for June and July for Medicare Advantage, individual and small group customers.

Premera Blue Cross promised $25 million in premium discounts to members with employer-based coverage to make up customers paying premiums for care they can’t access. And UnitedHealthcare said it would offer discounts between 5% and 20% to fully insured customers in June, while also waiving seniors’ cost-sharing for primary care and specialty care through at least September. Dirk McMahon, CEO of UnitedHealthcare, said the insurer was able to offer the discounts because medical costs have been lower than expected.

Even if insurers didn’t offer premium discounts now, it’s likely they would be forced to pay back some portion of their excess revenue later.

The ACA’s loss ratio rule requires that insurers selling individual and small group plans spend at least 80% of premium revenue on medical care and quality improvement, while large group plans must spend 85%. The remainder is used for profit and administrative costs. Insurers that don’t meet those minimum loss ratios must rebate the difference to customers.

Insurers’ loss ratios are calculated based on three years of financial data. They paid out record rebates worth $1.4 billion last year based on how they priced their plans in 2016, 2017 and 2018. The Kaiser Family Foundation estimates insurers will owe almost double that—$2.7 billion—in rebates to be paid out this summer based on 2017, 2018, and 2019. That averages about $340 per member.

The massive reduction in healthcare spending this year due to COVID-19, coupled with overpricing in other years, could lead to big rebates again in 2021, explained David Anderson, a researcher at Duke University’s Margolis Center for Health Policy. One way or another, insurers would have to pay back that cash, he said.

“If they pay it out this summer of fall, when people really need it, instead of holding on to it another year, that’s a good thing to do and it’s easier for insurers that are making those payments because they don’t have to track people down,” Anderson said.

Insurers must issue rebates for 2021, for example, to people who were enrolled in the health plan in 2020 in the form of a premium credit or a check. There’s also a public-relations element to offering premium discounts during the pandemic instead of being forced to pay rebates next year.

Worcester confirmed that offering premium discounts should affect UCare’s medical loss ratio calculation, but she said it’s unclear how much. She also said it’s not yet known if UCare would owe 2021 rebates.

UnitedHealth Group said that “only a very small portion” of its efforts to support members involve advancing future government rebates.

“In addition, with this effort, we’re putting money back into members’ pockets now, when they could use it. There are still many variables that may continue to change over time, and it is hard to predict exactly how this will all play out,” the company explained in an emailed comment.

CMS did not respond by deadline to questions regarding how premium discounts would be considered in insurers’ medical loss ratio calculations.