Fact Sheet: Middle Class Americans Saving Billions under the Health Care Law's Medical Loss Ratio Refunds

Tomorrow, President Obama will deliver remarks to discuss how the Affordable Care Act is putting money back into the pockets of over 8.5 million Americans. The President will be joined by families who have benefitted from a provision in the health care law that ensures insurance companies spend the majority of premium dollars on medical care and health care quality improvement, rather than on administrative costs. A broad coalition of community groups who will be working on the ground across the country to help enroll Americans in the new Health Insurance Marketplaces this fall will also attend.

One of the many parts of the health care law already benefitting middle class and working Americans is this provision that requires that insurance companies spend at least 80 percent of premium dollars on medical care and health care quality improvement, rather than on administrative costs and overhead. If they don't, the insurance companies must provide a refund to their customers.

Recent reports show us that this policy is working – it's holding insurance companies accountable and putting money back into the pockets of millions of middle class Americans in the form of refunds, reimbursements or reduced premiums when consumers don't get the value out of their premium dollars.

Building on this progress, there is new evidence to show that the Health Insurance Marketplaces that will open for business this fall will offer new, affordable insurance options to Americans who don't currently have access to affordable options. These new benefits and protections in the law are expanding access to quality, affordable health care choices, giving consumers a better value for their health care dollar, and cutting waste to lower costs across our health care system.

The following fact sheet details how several of the law's provisions are benefitting middle class and working Americans, including the refunds that are a result of the new health law and new data from the state of New York showing that health care premiums for some New Yorkers are expected to be up to 50 percent cheaper when the State's Health Insurance Marketplace opens on October 1.

PROVIDING REFUNDS FOR MILLIONS OF CONSUMERS

Under the Affordable Care Act, insurance companies are required to spend 80 to 85 percent of premium dollars on medical care and health care quality improvement, rather than on administrative costs or CEO bonuses. If they don't, the insurance companies must provide a refund to their customers. Americans can receives these refunds in several ways: a refund check in the mail; a lump-sum reimbursement to the same account that they used to pay the premium if by credit card or debit card; a reduction in their future premiums; or their employer providing one of the above, or applying the refund in another manner that benefits its employees, such as more generous benefits.

While most insurance companies are spending premium dollars consumers pay on their health care, before the enactment of the health care law, there was no way for all Americans to make sure that their premium dollars were primarily being spent on their health care and its improvement. The health care law's "Medical Loss Ratio" provision cracked down on the worst insurance companies that were not providing Americans the value consumers expect from their premiums.

According to a recent report from the Centers for Medicare and Medicaid Services, in 2012 8.5 million consumers received half a billion dollars in refunds – with the average consumer receiving a refund of around $100 per family. Moreover, in 2012, 77.8 million consumers saved $3.4 billion up front on their premiums as insurance companies operated more efficiently as compared to 2011.

And these refunds for consumers are on their way. CMS recently released new data showing the average refunds Americans are receiving in each state; this data is available HERE.

DRIVING COMPETITION THAT CREATES MORE AFFORDABLE OPTIONS

For those Americans who already have health insurance – the vast majority – the only changes you will see under the law are new benefits, better protections from insurance company abuses, and more value for every dollar you spend on health care. If you like your plan you can keep it and you don't have to change a thing due to the health care law.

For the uninsured or those who don't get their coverage through work, a key component of the Affordable Care Act will take effect on October 1, when the new Health Insurance Marketplace open for business, allowing millions of Americans to comparison shop for a variety of quality, affordable plans that best meet their health care needs. Preliminary data shows that the competition and transparency that these marketplaces will create for individual and group insurance will result in health care plans that are both higher quality and more affordable.

We have already seen evidence of this in states like California and Oregon and now New York, where the State just announced its health insurance plan rates for insurers seeking to offer coverage through New York's Health Insurance Marketplace.

According to the State, not only will new insurers be entering the market to offer more choices to consumers, the premiums will be below what the Congressional Budget Office projected. This is despite the fact that the state's health care costs are much higher than the national average.

Additionally, a new analysis being released today by the Department of Health and Human Services shows that the preliminary premiums for plans offered to individuals in these new Marketplaces will be lower than expected. Specifically, the HHS analysis finds that that:

•      In the eleven states for which data are available, the lowest cost silver plan in the individual market in 2014 is, on average, 18 percent less expensive than the HHS estimate of the premium that was assumed by the Congressional Budget Office.

•      Similarly, the lowest cost silver plan available to small employers in 2014 in the six states with available data is estimated to be 18 percent less expensive, on average, than the average premium that small employers would be paying for a pre-ACA silver plan trended forward.

•      These preliminary rates may be lowered before health plans are offered in Marketplaces this fall. Already, in a number of states (DC, OR, RI, VT), the rate review process plus competition are resulting in final rates that are significantly below what was proposed earlier this spring.

•      Preliminary premiums appear to be affordable even for young men –a group about which there has been concern about "rate shock." There are approximately 750,000 young men (ages 18-34) who will not qualify for a premium tax credit who are currently enrolled in the individual market. In Los Angeles (the county with the largest number of uninsured Americans in the nation), the lowest priced silver plan for a 25 year old costs $174 without a tax credit, $34 for someone whose income is $17,235, and a catastrophic plan can be purchased for $117 a month.

While further work is needed to better understand 2014 rates, these results suggest that greater competition and transparency are leading to substantial benefits for both consumers and employers in these markets.