I Just Received My Private Health Insurance Rebate Checks

Private Health Insurance Rebate Check - Gift?

Always look a gift horse in the mouth.

“..we have to pass the bill so that you can find out what is in it…”

Well, Nancy, we’re starting to find out.

And in this particular case, I would imagine many Americans will be pleased (at least in the short-term) at what they are finding in their mailboxes.

I’m talking about the health insurance rebate checks that are being mailed out right now until August 1, 2012.

I received two rebates checks in the mail because I dealt with two private health insurance companies in 2011.

But not everyone is getting a rebate on their health insurance premium.

Only around 12.8 million people will get a refund, according to the Health and Human Services Secretary.

So why did I receive a rebate? Well, there is a rule inside Obamacare (the Affordable Care Act) called the Medical Loss Ration Rule (or the 80/20 Rule) that is aimed at making sure insurance companies are running their business efficiently. Efficiently is then defined as spending 80% of your premium collections on medical services and spending 20% on overhead and profit.

If, during 2011, an insurance company did not meet this 80/20 ratio, then they owe their customers a rebate for the difference. In 2011 I paid individual health insurance premiums to both Humana and BlueCross BlueShield of Texas. Both of these companies did not meet the 80/20 ratio.

Group insurance companies are affected, but not near as much as private health insurance companies.

BlueCross BlueShield of Texas said this in the letter than came with my rebate check:

“In 2011, BCBSTX spent only 71.0% of a total of $1,054,029,473 in premium dollars on health care and activities to improve health care quality. Since it missed the 80 percent target by 9.0% of premiums it received, BCBSTX must rebate 9.0% of your health insurance premiums.”

Humana, who I had the majority of the year, had a similar miss (by 8.0%). The rebates from both companies totaled around $180, which seems about right. Here’s the calculation. I was on private health insurance using these two companies for around 7 months in 2011. My premium payments were $325 a month.

  • $325 x 7 months = $2275 in total premiums
  • $2275 x 8.0% = $182 rebate

Should you be getting a health insurance rebate check? It’s not likely. According to the HHS, around 35% of insured individuals will receive a rebate. If you are on group health insurance your rebate will likely come in the form of a reduction of future premium payments taken from your pay check (see Forbes link above).

Will getting a health insurance rebate check affect your taxes? In many cases, taxes will have to be paid to the IRS based on this rebate. For instance, I deduct my insurance premiums as a business expense. Because I received a deduction for the full amount, including the rebate, I will have to pay taxes on the rebate. This will be handled when I file my return for 2012.

If you are on a group plan with an employer, and you pay your health insurance premiums pre-tax, then you will likely have to pay taxes on the rebate. My suspicion is that your employer can handle the adjustment in your withholding, but I suggest you talk to your employer and CPA about the issue in detail. See the IRS’ website dedicated to Medical Loss Ratio FAQs.

Is this a good thing? For the consumers, this is an immediate win. Who can complain about money back in their pocket? One might think that a rebate to “keep these insurance companies in check” every year is a good thing. But it doesn’t come without long-term effects.

This rule will just put insurance companies out of business. If 80/20 were possible, they would already be doing it. Rick Ungar of Forbes agrees and says that this will only lead to a single-payer health care system (i.e. government run health care). He thinks that’s a good thing. I don’t. But that’s a debate for another blog.

Did you get your private health insurance rebate check? Did your employer tell you about a rebate? What’s been your experience?

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Last Edited: July 26, 2012 @ 3:06 pm The content of ptmoney.com is for general information purposes only and does not constitute professional advice. Visitors to ptmoney.com should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.
About Philip Taylor

Philip Taylor, aka "PT", is a CPA, financial writer, FinCon CEO, and husband and father of three. He created PT Money back in 2007 to share his thoughts on money and to meet others passionate about managing their finances. All the content on this blog is original, and created or edited by PT. Read more about Philip Taylor, and be sure to connect with him on Twitter, Facebook, or view the Philip Taylor+ Google profile.

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  1. I’m glad to see you explain exactly what’s going on with health care reform. People need to accept these checks in the mail as evidence of what is happening long term to the health insurance market. competition being taken away in any market is not good for consumers in that market.

  2. It’s actually NOT difficult for insurance companies to meet the 80/20 rule (or even the 85/15 rule companies that administer large group policies are held to). I can say this because I work for an insurance company that spends ridiculous amounts on administration and is no where near having to send out refund checks. What’s the secret? Not trying to profit off of other people’s health. In my state, no health insurance company can be a for profit company. They must all be not for profits. And, not a single company in my state has to send out refund checks.

  3. I see your point that it is a direct and short term win for consumers but there is something that doesn’t feel right when the gov’t is telling a private business how to spend its money.