Received $621 rebate from Humana

[Buckeye]

Humana failed to spend 80% of our premium on healthcare related expenditures so we received a $621 rebate. Talk about surprised when I opened that envelope!

Our plan year is June - May. Last year DH and I were paying $375 per month for a high deductible ($11,000) policy. June 1, the premium increased to $433. I'm assuming the rebate covers last policy year but I'd have to read the letter again to be sure.

So we were paying $50 too much when the premium was $375. How much too much are we now paying at $433 per month?

From what I understand from my insurance broker, Humana has the Tampa Bay area locked up and there's really no competition. At least now there is some accountability for the rates they charge thanks to the ACA.

 

[fisherman]

I got a check over $900 last year from Humana. Still waiting for this years check which should be soon. This has been a nice change.

 

[kmt1972]

Exactly how does this work? What do you mean by 80% of premium ? Is this part of some FSA setup?

 

[fisherman]

It is part of the ACA. Health Insurance companies are required to spend 70 or 80 percent of the premiums from individual health insurance polices on claims and running the business as I under stand it. last year in doing the math they apparently only spent 30% on claims and running the business for individual policies so about a 70% profit! The ACA required that they return the difference to the policy holder of the individual policy.

 

[Buckeye]

Exactly how does this work? What do you mean by 80% of premium ? Is this part of some FSA setup?

Below is what the letter with the check said. The rebate has nothing to do with my HSA. It has to do with the rules for Medical Loss Ratio under Obamacare.

"The Affordable Care Act requires Humana Insurance Company to issue a rebate to you if Humana Insurance Company does not spend at least 80 percent of the premiums it receives on health care services, such as doctors and hospital bills, and activities to improve health care quality, such as efforts to improve patient safety. No more than 20 percent of premiums may be spend on administrative costs such as salaries, sales, and advertising. This requirement is referred to as the "Medical Loss Ratio" standard or the "80/20 rule". The 80/20 rule in the ACA is intended to ensure that consumers get value for their health care dollars. You can learn more about the 80/20 rule and other provisions of the health reform law at:

https://www.healthcare.gov/law/features/costs/value-for-premium/index.html

The Medical Loss Ratio rule is calculated on a State by State basis. In Florida, Humana did not meet the Medical Loss Ratio standard. In 2012, Humana Insurance Company spent only 69.6% of a total of $77,530,596 in premium dollars on health care and activities to improve health care quality. Since it missed the target in your state by 10.4% of premiums it received, Humana Insurance Company must rebate 10.4% of your health insurance premiums. We are required to provide this rebate to you by August 1, 2013, or apply this rebate to your premium that is due on or after August 1, 2013.

We are enclosing a check."

My refund was 13.8% of the total premiums I paid during my premium year from June - May. The letter did not state over what period the rebate was calculated.

 

[bUU]

I haven't gotten one of these checks yet, but I suspect that the laws here in MA have been such that insurers have been trained to charge reasonable premiums from the start rather than getting into this whole high premium and then rebate rigmarole.

 

[Buckeye]

I haven't gotten one of these checks yet, but I suspect that the laws here in MA have been such that insurers have been trained to charge reasonable premiums from the start rather than getting into this whole high premium and then rebate rigmarole.

I would be very happy if Humana charged right the first time. Or does this say there was an unusually low number and/or size of claims this year? 10.4% seems like a big miss but I don't know how hard it is to accurately estimate. Health insurance companies are below used car salesmen on my trust scale.

 

[scrabbler1]

I worked in the actuarial field for 23 years, specializing in personal auto insurance. But the basic principles or figuring out what rates to charge are similar. The insurance companies have to figure out what to charge in advance of what the losses turn out to be, of course. They project historical losses into the future, so there is some guesswork there. If they overshoot on those projections, then they will end up overcharging on the new premiums end. These rebates are a way of fixing some incorrect guesswork made when they figured out what to charge originally.

What happened with you, Buckeye (and with me, as I received 2 rebate checks in 2012 because I switched companies in the middle of the year, and both failed to meet the minimum MLR), was that Humana overshot its loss projections and is fixing this after the fact. At least the health insurance companies can't go back and send you a bill for more premiums due if they undershoot on their loss projections, which is why they probably prefer to overshoot - at least they do no worse than break even.

 

[utrecht]

"The Affordable Care Act requires Humana Insurance Company to issue a rebate to you if Humana Insurance Company does not spend at least 80 percent of the premiums it receives on health care services, such as doctors and hospital bills, and activities to improve health care quality, such as efforts to improve patient safety. No more than 20 percent of premiums may be spend on administrative costs such as salaries, sales, and advertising. This requirement is referred to as the "Medical Loss Ratio" standard or the "80/20 rule". The 80/20 rule in the ACA is intended to ensure that consumers get value for their health care dollars. You can learn more about the 80/20 rule and other provisions of the health reform law at:

If they spend 80% or more of premiums received on health care services and 20% of premiums on admin costs, where do their profits come in?

 

[Buckeye]

If they spend 80% or more of premiums received on health care services and 20% of premiums on admin costs, where do their profits come in?

IDK. Part of the 20% or off the top?

 

[scrabbler1]

If they spend 80% or more of premiums received on health care services and 20% of premiums on admin costs, where do their profits come in?

The 20% not paying for medical services can go for anything else, from admin costs to profits. In my years working in personal auto insurance, the LR devoted to paying losses was about 70%, leaving 30% to pay for profits, admin costs, and anything else not tied to paying losses. So if the insurance companies have a bad year (think about big, natural disasters such as Sandy or Katrina), they make little or even lose money.

 

[bUU]

Does anyone suspect that Humana was playing the odds that Medical Loss Ratio would be overturned (and lost)? If so, it does provide some insight into just how much cost+profit insurers would grab for if they could. Or was this just a case of a statistical outlier happening?

 

[MichaelB]

Does anyone suspect that Humana was playing the odds that Medical Loss Ratio would be overturned (and lost)? If so, it does provide some insight into just how much cost+profit insurers would grab for if they could. Or was this just a case of a statistical outlier happening?

They are financial intermediaries. Collect now and refund later is an acceptable business for them. That will become more difficult as policies on the exchanges will be easier to compare, there will be more competitive pricing pressure.

 

[pb4uski]

The 20% is for overhead and profit. If I were in that business I would rather collect more and refund every year rather than have mis-estimation crimp on my 20% available for overhead and profit as long as the cost of processing refunds wasn't very high.

 

[scrabbler1]

Does anyone suspect that Humana was playing the odds that Medical Loss Ratio would be overturned (and lost)? If so, it does provide some insight into just how much cost+profit insurers would grab for if they could. Or was this just a case of a statistical outlier happening?

I do not know if politics played a role in selecting the MLR. I can't say that politics played a frequent role in our insurance ratemaking but then again I worked in a different line of insurance (still subject to political pressures at times, for sure). One of the companies which sent me a rebate check spent 69.4% of its premiums on paying losses, similar to Humana, while the other company paid 81% (NY State required 82%, not 80%) so I received a tiny rebate.

 

[pb4uski]

Does anyone suspect that Humana was playing the odds that Medical Loss Ratio would be overturned (and lost)? If so, it does provide some insight into just how much cost+profit insurers would grab for if they could. Or was this just a case of a statistical outlier happening?

IIRC the MLR provisions weren't at issue in the SCOTUS cases. I doubt that was the play - probably more just mis-estimation.

In terms of what they would grab for if they could, I suspect that it would be what the market would bear. Competition would drive the amount downward but the baseline would be a premium sufficient to cover claims, overhead and profit equal to a market return on the capital needed to support that block of business (that would go to bondholders and shareholders).

 

[nvestysly]

DW and I received a refund from United Health Care this year. The check was not very large - apparently we only overpaid by $10/month or so. I suspect insurers will err on the side of overpayment and send a rebate rather than find themselves in the hole.

I like the intent of the 80/20 rule but I think there are many unintended consequences for this rule. I can imagine lobbyists whitteling away at the ratio - is 75/25 on the horizon. I can also imagine scenarios where the insurer no longer has an impetus to reduce reasonable/customary amounts because they can simply pay higher claim amounts and say "we spent" 80%. So the amounts doctors charge (or are willing to accept) will increase because the insurer can simply redefine their 80% amount.

What's the difference between this and the current situation of seemingly ever-increasing premiums? I think not much. For a few years the masses will be appeased because of the rebates. Maybe the rebates will even continue indefinitely as it becomes the new business model - overcharge and rebate the excess. But I don't think it has a dramatic affect on the overall practice of individuals expecting "insurance" to pay for all medical visits/procedures regardless of how much the procedure costs.

Until individuals are part of the loop - seeing how much procedures cost - understanding that everything is not "free" - medical insurance premiums will continue to rise at much higher rates than inflation because we're spending other peoples money. When you spend other peoples money you don't spend it as wisely as when it's your own money.

So for now I guess I'll be happy that I received a rebate. Do I expect any real changes? NO!

 

[bUU]

IIRC the MLR provisions weren't at issue in the SCOTUS cases.

Weren't the plaintiffs asking the court to overturn the enter law? I remember that the plaintiffs (apparently erroneously) argued (in part) that if the revenue-supporting elements of the law are overturned, that the court would have to overturn the cost-inducing elements of the law as well.

I can imagine lobbyists whitteling away at the ratio - is 75/25 on the horizon. I can also imagine scenarios where the insurer no longer has an impetus to reduce reasonable/customary amounts because they can simply pay higher claim amounts and say "we spent" 80%.

Several other posters pointed out what helps confront that, the competition and comparability of coverage afforded by the exchanges. Does anyone know if there are provisions in the law requiring that prices for individual coverage be in some way linked to prices offered for group coverage? I would hope that the exchanges, themselves, be treated as if it were a big group.

 

[pb4uski]

Weren't the plaintiffs asking the court to overturn the enter law? I remember that the plaintiffs (apparently erroneously) argued (in part) that if the revenue-supporting elements of the law are overturned, that the court would have to overturn the cost-inducing elements of the law as well. ....

As I recall the main issues were the individual mandate and the Medicaid expansion and the remedy the plaintiffs wanted was for the entire law to be overturned but there was room for the court to overturn specific provisions without overturning the entire law.

But if it makes you feel better, yes there was definitely a mini-conspiracy on the part of the carriers in the hopes that the law was overturned.

 

[bUU]

I found reference to what my sketchy memory was recalling earlier... it was arguments like this one made by Mario Loyola (Texas Public Policy Foundation), Richard Epstein (The Heartland Institute) & Ilya Shapiro (Federalist Society): Why the Individual Mandate Is Inseparable from Obamacare - Mario Loyola, Richard Epstein & Ilya Shapiro - The American Interest Magazine I'm trying to find something indicating whether that argument made it into the plaintiffs filing with the court, because I won't sleep tonight if I don't fill in this gap in my memory.

UPDATE: I think not: I think the matter of separability in the court was just a matter of whether the requirements could be separated from their penalties. News article after news article focuses on that matter of separability, not separability of the mandates/penalties and other aspects of ACA, including Medical Loss Ratio.

 

[Buckeye]

DW and I received a refund from United Health Care this year. The check was not very large - apparently we only overpaid by $10/month or so. I suspect insurers will err on the side of overpayment and send a rebate rather than find themselves in the hole.

I like the intent of the 80/20 rule but I think there are many unintended consequences for this rule. I can imagine lobbyists whitteling away at the ratio - is 75/25 on the horizon. I can also imagine scenarios where the insurer no longer has an impetus to reduce reasonable/customary amounts because they can simply pay higher claim amounts and say "we spent" 80%. So the amounts doctors charge (or are willing to accept) will increase because the insurer can simply redefine their 80% amount.

What's the difference between this and the current situation of seemingly ever-increasing premiums? I think not much. For a few years the masses will be appeased because of the rebates. Maybe the rebates will even continue indefinitely as it becomes the new business model - overcharge and rebate the excess. But I don't think it has a dramatic affect on the overall practice of individuals expecting "insurance" to pay for all medical visits/procedures regardless of how much the procedure costs.

Until individuals are part of the loop - seeing how much procedures cost - understanding that everything is not "free" - medical insurance premiums will continue to rise at much higher rates than inflation because we're spending other peoples money. When you spend other peoples money you don't spend it as wisely as when it's your own money.

So for now I guess I'll be happy that I received a rebate. Do I expect any real changes? NO!

Believe me. An $11,000 family deductible makes one think long and hard about what is medically necessary and we are under no misconception that "insurance" pays for our healthcare! I just need the tools to be a good shopper. Humana has some on their website but not enough. I agree with you that we all need to have sufficient skin in the game to make good choices that positively impact our entire community.

 

[MooreBonds]

Does anyone know if there are provisions in the law requiring that prices for individual coverage be in some way linked to prices offered for group coverage? I would hope that the exchanges, themselves, be treated as if it were a big group.

I don't believe there are specific requirements in the law that link 'group coverage' to exchange pricing - the only requirement I'm aware of is the over-55 be no more than 3x the youngest group.

I also would be surprised if there is something linking group coverage policies - each company's policy would be different, as some organizations have many younger people, while some have many older people, along with different medical claim histories. That would result in radically different group rates from year to year for any given company.

To try and link the various differences in rates between corporate plans to the individual markets would be a nightmare beyond belief, IMO. And also conflict with the 3:1 ratio between older and younger rates, since everyone in a group plan is charged the same rate regardless of age.

 

[bUU]

I also would be surprised if there is something linking group coverage policies - each company's policy would be different, as some organizations have many younger people, while some have many older people, along with different medical claim histories.

Isn't age just a dimension like other demographics (smokers)? Medical claim histories are another matter, but I would expect the law to expect that over large groups the histories shouldn't be different enough to justify rate differences.