The Health and Human Services Department has announced that health insurance plans will pay $1.1 billion in rebates this summer for 12.8 million Americans.
The new Affordable Care Act provision requires a minimum of 80 percent of insurance companies' subscriber premiums to go to claims and quality improvement initiatives. If this requirement, known as "the medical loss ratio standard," is not met, the insurance company is required to pay back the customer or business with a rebate.
"Basically, they have to be spending the majority of your premium dollars on things that help improve your health," says Sarah Cliff, a health care reporter for the Washington Post. "The whole idea for this was to ensure that most of what Americans are spending on healthcare is actually going to their healthcare."
Tim Jost, a law professor at Washington and Lee University, thinks that the provision will be quite popular when the rebates, whose average value will be $151 per customer but will vary by state, begin to arrive. Because they will manifest themselves as reductions in premiums, employers who pay for their employees' health insurance will benefit as well as individuals. "This is going to be an awful lot of cash in the pockets of American businesses as well, and a lot of them are going to be small businesses."
Small group plans, which small businesses usually take out, will receive $174 million, or 20 percent of the total rebates. The majority of the cash, Cliff says, will go to big businesses: "The money does go to the employer, who is required by law to use it in some way that benefits the employee, whether that's handing out cash or putting towards premiums for the next year."
The rebates, however, would be rescinded if the Supreme Court overturns the health care law, a decision that could come any moment. As the Affordable Care Act is being debated before the Supreme Court, this provision will not be enacted if the entire law is struck down. However, Jost says that if the Supreme Court only strikes down the controversial individual mandate, the rebates will go out as planned. "If the Court strikes down the entire law, it's just made a billion dollar gift to the insurance industry, and it'll be a billion dollars less in the pockets of American businesses and consumers."