Blue Shield of California owes $24.5 million in rebates to thousands of small-business customers, and rival Anthem Blue Cross will return $12 million to small firms under requirements of the federal healthcare law.
The annual rebates were disclosed in reports to state regulators, and the final tally from some companies may change before they are paid out by Aug. 1.
The rebate is required under the federal Affordable Care Act when insurers fail to spend a minimum of 80% of premiums on medical care for individual and small-business customers.
Last year, the first time the rebate came into play, health insurers refunded $74 million to nearly 2 million Californians, an average of $65 a family, according to federal data. Nationwide, health insurers returned $1.1 billion to 12.8 million Americans last year.
Lawmakers and consumer groups pushed for the rebates as part of the federal healthcare law to ensure companies aren’t raising rates to pay more for executive salaries, shareholder dividends and other expenses unrelated to patient care.
They also hoped these rules would hold down future rate increases and force insurers to squeeze out unnecessary costs.
“Health insurers should work to cut upfront premiums rather than reimburse consumers afterward,” said Jon Fox, consumer advocate at the California Public Interest Research Group Education Fund. “Millions of dollars in rebates are a clear sign that health insurers are overcharging consumers.”
Health insurers have to notify government officials this month about any failures to spend the minimum amount and how much they owe customers. Not all of an insurer’s policyholders will get rebates, and the amounts will vary.
This year, most of the money so far is going to small-business customers rather than individual policyholders or large employers.
UnitedHealth Group Inc., the nation’s largest health insurer, owes $3 million to some of its small-business policyholders in the state, and Woodland Hills insurer Health Net Inc. must return $2.3 million to small firms, according to filings with the California Department of Managed Health Care.
Some individual policyholders will get money back. Healthcare giant Kaiser Permanente said it owes $2.7 million in rebates to about 66,000 individual customers.
Darrel Ng, a spokesman for Anthem Blue Cross, said “predicting the cost of care is an inexact science.”
“In one portion of our business, we spent less than we anticipated on medical claims,” he said.
This year’s rebates come amid increasing scrutiny of California’s health insurance premiums for next year during the rollout of the healthcare overhaul. A key part of that rollout is California’s new state-run health insurance market, where most individuals not on employer health plans are expected to get coverage.
Last month, the state picked 13 health plans for the state insurance exchange, called Covered California, and said their proposed rates for individual customers came in better than expected. The state is expected to announce proposed rates and plans for small businesses in Covered California this month.
Under federal law and similar state rules, insurers must spend at least 80% of premiums on medical care for individual and small-group policies, which cover businesses with 50 or fewer workers.
For larger employers, insurers must spend at least 85% of premiums on medical expenses. Employers that self-insure are not subject to these rules.
Blue Shield, the state’s third-largest health insurer, will be sending rebates to about 29,000 small businesses. That’s because the San Francisco insurer spent 76.6% of premiums on their medical care. Those small firms cover 90,000 employees and dependents.
The rebates go to employers, and the companies are expected to share the money, based on the percentage workers contribute to their annual premiums.
Blue Shield said it will disclose additional rebates in a separate filing, but it declined to specify what those will be.
Anthem Blue Cross, a unit of industry giant WellPoint Inc., will be giving rebates to nearly 45,000 small businesses. The state’s largest for-profit health insurer spent 79.3% of premiums on their medical care, just shy of the threshold. Those small employers cover about 322,000 workers and family members.