Here’s Why You Might Get Money Back From Your Health Insurer This Year

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Medical doctor with piggy bank, calculator and cash
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With the rising cost of health care premiums, wouldn’t it be nice if your insurer paid you instead of the other way around?

Well, thanks to something called “medical loss ratio” you could be getting a health insurance premium rebate this year!

Understanding What Medical Loss Ratio Means to You

In this article, we’ll explain what medical loss ratio (MLR) is, why you might be receiving a premium rebate and more.

Table of Contents

What Is the Idea Behind Medical Loss Ratio?

Medical loss ratio is a ratio that reflects the percent of dollars a health insurer collects in premiums that are spent on improving health care vs. spent on other things.

Under the terms of the Affordable Care Act (ACA), the federal government wants insurers to spend a majority of the money they collect on positive patient outcomes.

There are two standards for MLR. Each is based on the size of the employer through which you get your health insurance:

  • Large group insurers are required to spend a minimum of 85% of premium dollars on clinical services and activities
  • Individual and small group insurers are required to spend a minimum of 80% of premium dollars on clinical services and activities

MLR is calculated on a state-by-state basis. So it’s an aggregate measure of how health insurance companies spend their premium dollars in your state.

Why Might You Be Getting Money Back?

Let’s say the insurance company you were with last year failed to spend an adequate amount of money on improving health care quality in your state. As we’ve already established, that could be either up to 80% or 85% of premiums depending on your group plan.

The insurer is required by the ACA to return the shortfall to the employer, who in turn has to pass it on back to you.

The easiest way to understand this is through a real-world example. I recently got a letter from UnitedHealthcare Insurance Company that I found puzzling at first. It explained that they did not meet the 80% threshold in my state. I work for a small employer.

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Rather, they were apparently directing too much of those dollars to salaries, sales and advertising — not improved health care outcomes.

“In 2018, UnitedHealthcare Insurance Company spent only 74.9% of a total of $59,642,064.95 in premium dollars on health care and activities to improve health care quality,” the letter reads. “Since it missed the 80% target by 5.1% of premium it receives, UnitedHealthcare Insurance Company must rebate 5.1% of the total health insurance premiums paid by the employer and employees in your group health plan.”

Under the law, all commercial insurers have to hand the money back to the employer or group policyholder by September 30 of every year.

How Will You Get the Money Back, If You’re Due Any?

Employers have to follow certain rules about what to do with the money when they get it back under the MLR.

There are a few common methods of reimbursement, according to Healthcare.gov. Employers can either issue a:

  1. Rebate check
  2. Lump-sum deposit into the account used to pay the premiums
  3. Lower premiums for the upcoming year, or
  4. “[A]pply the rebate in a way that benefits employees”

What Happens Next?

You know you’ll get some kind of compensation as outlined above if you get a letter in the mail or other notice from your insurance company to that effect. The way it’s handled will vary by workplace.

That’s why all questions should be directed to your employer or their human resources department.

Final Thought

If you got a letter about a health insurance premium rebate, your first thought was probably, “Is this for real?” Now that we’ve established that medical loss ratio is legitimate, the only thing left to do is ask your employer how they plan to handle the rebate.

Remember, this is money that you and your employer paid in premiums during a previous policy period — so it’s your money! Isn’t it nice to get some of it back?

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