Consumers in nine states owed an expected $95 million in rebates from their health insurers might not see those rebates after all.
Those states' regulators are asking the Obama Administration to ease up on rules that say insurers must spend at least 80 percent of their premium revenue on medical care or quality improvements.
The regulators say some insurers are unable to quickly make the changes needed to hit that spending target — and would have to pay rebates to consumers. They say that, without relief, insurers would flee their markets, leaving some policyholders unable to qualify or afford other coverage.
Not so, say consumer advocates, who say most insurers should be able to meet the spending rule.
"The end impact will be to deny consumers the millions in rebates they expect to get on this year's premiums," says Carmen Balber, Washington director of the advocacy group Consumer Watchdog.
Under the federal health law, insurers must spend at least 80 percent of premium revenues on medical costs or quality improvements; the remainder can go toward administrative costs, broker commissions and profits. Many health plans, but not all, already meet that target.
The spending requirement, called the "medical loss ratio," applies to all health plans, except those offered by companies that are self-insured, where an insurance company just does the paperwork, and the employer decides what the benefits include.
The waivers sought by the states would affect only individual policies bought by people who don't get coverage through their jobs. Nationwide, more than 18 million Americans purchase their own policies.
Up to 9 million Americans with individual policies and in group plans could be eligible for rebates, according to government estimates.
In the states asking for an adjustment, potential rebates total more than $95 million for policies in effect this year.
The Department of Health and Human Services is expected to rule soon on requests from New Hampshire and Nevada to ease the rule. Other states that have applied are Florida, Kentucky, Louisiana, North Dakota, Georgia, Kansas and Iowa. Maine has already been granted an adjustment, with insurers there being allowed to spend only 65 percent of revenue on medical care during each of the next three years.
In deciding whether to lower the target in some states, the administration will weigh how many insurers might leave a market, how many people would be affected and whether policyholders have other options, such as special insurance pools for people with health problems, says Steven Larsen, deputy administrator of the Center for Consumer and Insurance Oversight at HHS.
He says deciding on the states' requests is a balancing act: While insurers should be pushed to spend more on medical care, it "might not be in consumers' best interest" to drive them out of the marketplace.
Because of that, some analysts predict that the administration will grant most of the states' requests.
"The last thing the Obama administration wants is the Des Moines Register writing about 500 people who lost their health insurance in Iowa because of the Obama health plan," says Robert Laszewski, a consultant to the health care industry and a former insurance executive.