Dive Brief:
- Healthcare insurers will return an estimated $1 billion in 2022 in medical loss ratio rebates, a significant amount which signals a cooling-off period following three-straight years of record payer rebate returns and profits spurred by the COVID-19 pandemic, according to an analysis released Wednesday by the Kaiser Family Foundation.
- The MLR rebates, based on a three-year average, did not include higher-than-usual 2018 figures, part of the reason rebates issued in 2019, 2020, and 2021 were so large.
- Higher loss ratios recorded last year could foreshadow 2023 premium hikes as expiring American Rescue Plan tax credits threaten premium raises and some states face looming insurance hikes, the report said.
Dive Insight:
Healthcare market insurers will issue about $1 billion in MLR rebates to an estimated 8.2 million people in 2022, according to KFF. It's the latest year in a trend of massive overcharging after insurers were ordered to pay back $2 billion in 2020 and $2.5 billion in 2021 rebates. Record-high rebates, mandated under the Affordable Care Act, came after insurers raked in substantial profit during the early phases of the COVID-19 pandemic as patients canceled elective procedures and delayed medical care.
Insurers across all commercial markets are paying the price for record profits in 2019, 2020 and 2021 due to MLR calculations based on three-year averages, with individual market insurers paying the biggest chunk at $603 million in 2022 rebates, according to the report.
This year is the first in several years in which the three-year average will not include 2018, a profitable year for many individual market payers as uncertainty abounded concerning ACA policymaking in 2017 and insurers exceeded premium estimates, the report said. High profitability in one year can drive up MLR rebates if it effects the three-year average.
But insurers, who are currently setting 2023 premiums, may get spooked by high MLR averages in 2020 and 2021 caused by the COVID-19 pandemic and potentially propose steeper premiums to lower loss ratios, the report said. Threats of higher premiums are already looming as tax credits subsidizing the individual market from the American Rescue Plan threaten to expire. Analysts found that healthcare spending could drop by $11.4 billion if credits are allowed to end. High rates of inflation could also drive up provider prices and increase premiums, the report found.
High 2022 rebates follow first quarter profitability for insurers despite cautious early-year financial expectations as payers saw membership increases and hospitals faced pressure from the omicron variant. Individual market insurers in 2021 were likely less profitable than in 2020 or 2019 due to higher loss ratios, the report said, adding that individual market insurers spend an average of 88% of premium income on health claims.
Insurers like UnitedHealth, Humana, Centene and Molina all saw a rise in revenues compared to the first quarter of 2021. In contrast, hospitals are struggling in 2022 as a decline in patient visits tamp down revenue and margins.
The report estimates that 4.3 million patients are owed a rebate in the individual market, compared to 1.8 million and 2.2 million in the small group market and large group market, respectively. Rebates are mailed by the end of September each year.