The Affordable Care Act's medical loss ratio (MLR) will bring 8.5 million insurance customers about $500 million in rebates this summer and hopefully drive more competition in the long run, federal health officials said Thursday.
"This year, more insurers are meeting the standard and paying rebates," Gary Cohen, director of the Center for Consumer Information and Insurance Oversight (CCIIO), said in a media briefing.
Last summer, insurers who didn't spend at least 80 percent (or 85 percent for large group plans) of premium revenue on medical services in 2011 sent 12.8 million consumers a collective $1.1 billion in rebates.
That the number decreased by half this year "means more insurers are adjusting to the market and reducing costs," Cohen said.
"Companies know that if they end up pricing to a ratio that's below the MLR...they're going to have to give that money back," he said.
Towards the end of the summer, CCIIO, a division of the Centers for Medicare & Medicaid Services, is going to release data breaking down MLR compliance and rebate payments by insurer, as was done last summer
Cohen said that compared to 2011, one year after the rule took effect, insurers are increasingly avoiding rebates by holding premiums down in the first place or prioritizing medical spending.
"Their incentive is to be at least at the standard, and what we're seeing is that in many cases they're above the standard," said Cohen, a former deputy commissioner at the California Department of Insurance.
In a press release, CMS also credited the MLR with saving consumers nationwide $3.4 billion upfront in premiums in 2012, although Cohen, in response to questions about cause and effect, said the estimated cost reductions probably have more than one driver.
"I don't think that we are claiming that the $3.9 billion is entirely due to the 80/20 rule. There are other aspects of the ACA that are contributing to this and other market forces," he said. "We think that rate review is part of it; we think that increased competition is part of it."
Cohen also offered some thoughts on the emerging variation in premium rates, as some state regulators post proposed rates for insurance exchange health plans. He said he thinks existing market profiles may see rates varying initially, but that they will start to balance nationally in the next few years.
"In states where there's a relatively competitive market, the results have been relatively encouraging," Cohen said. "But there are states where the market is highly concentrated, and it's safe to assume you'll see less pressure to keep prices low. We are in the process of transforming the existing state market...over time, we expect that there'll be competitive markets in all of the states and that premium rates will reflect that."