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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