More than 42,000 New Jerseyans will get a total of $3.4 million in health insurance refunds this summer, under a provision of the Affordable Care Act that requires insurers to spend at least 80 percent of the premiums they collect on medical care.
Health and Human Services Secretary Sylvia M. Burwell announced Thursday that 42,300 New Jerseyans will receive refunds averaging $142.
The refunds are mandated by the ACA’s “80/20 rule,” or medical loss ratio rule, which requires insurers to spend at least 80 percent of premium dollars on patient care and quality improvement activities. According to HHS, if insurers spend an excessive amount on profits and red tape, they have to provide refunds to consumers.
According to HHS, three health insurers doing business in New Jersey will make the following aggregate refunds to their customers: Nippon Life Insurance Co, $2,357,487; Oxford Health Plans, $932,301; and Monumental Life Insurance Co, $144,602.
Joel Cantor, director of the Rutgers Center for State Health Policy, said, “The rebates are required because payments to medical providers under the health plans are lower than expected.”
He said insurance company actuaries do their best to predict those provider payments, “but sometimes their predictions will miss the mark. When insurance markets are changing rapidly, as they are now with the enrollment changes under the ACA, there are likely to be more miscalculations and more rebates. Over time, I would expect the level of rebates come down. That would be a good thing, because it means that premiums are being calculated accurately and that consumers are not being charged more than is permitted in the first place.”
“The 80/20 rule is bringing transparency and competition to the insurance market, ensuring that consumers are continuing to receive value for their premium dollars,” Burwell said in a statement. “Standards like these created under the health care law are providing (consumers) with immediate savings and are helping to keep costs down over the long term.”
HHS said nationally insurers will refund $332 million to 6.8 million of their customers, and will either issue a refund or reduce the customer’s future premiums.
New Jersey was already requiring insurers to pay out at least 80 percent of their premiums for medical care before the 2010 passage of the ACA, noted Ward Sanders, president of the New Jersey Association of Health Plans, the trade association for the state's health insurers.
He said New Jersey's 1992 health insurance reform law initially required a 75 percent payout, which was later increased to 80 percent for the individual and small group market. Sanders said the ACA requires an 85 percent minimum payout for large employee groups.
Sanders said health plans collect nearly $9 billion in premiums annually in New Jersey, and the $3.5 million of refunds this year suggest insurers "were not that far off" when they estimated customer premiums.
"Insurers are held to accountability standards on their pricing, which is not true for lots of other players in the health care field," including hospitals and drug companies, Sanders said. "There are no limits sometimes on what other entities in the health care field can charge."
He said while the $3.4 million in refunds will be beneficial to the consumers who will receive them, "this is not going to answer the affordability challenge. That's going to come when we get tougher around pricing and more efficient in the delivery of hospital care, drugs and other services."
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