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Senate bill could roll back health insurance savings

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This summer, health insurance companies may have to pay more than a billion dollars back to their own customers. The rebate requirements were introduced as part of the 2010 health-care reform law and are meant to benefit consumers. But now an insurer-supported Senate bill aims to roll back the rebate requirements.

Known as the medical loss ratio rule, it's actually pretty simple. Under the health-care law provision, 80 to 85 cents of every dollar insurers collect in premiums must be spent on medical care or activities that improve the quality of that care. If not, they must send their customers a rebate for the difference. The goal, according to the Department of Health and Human Services, is to limit the money insurers spend on administrative costs and profit.

"It essentially ensures that consumers receive value for every dollar they spend on health care," HHS spokesman Brian Chiglinsky told ProPublica.

Last month, Sen. Mary Landrieu, D-La., introduced a bill that would change what costs companies can include in the 15 to 20 percent they are allotted for overhead, salaries and marketing. The bill, similar to a House bill introduced in March 2011 that has yet to come up for a vote, focuses on payments to insurance agents and brokers. Traditionally, these commissions are bundled into the administrative costs when making the final calculation. But insurance regulators have argued that fees paid to insurance agents and brokers shouldn't count.

Such a change could mean big savings for insurance companies — and much smaller rebates for consumers.

This is the first year that companies are required to send out rebates. According to a report by state insurance commissioners, if rebates had been handed out last year, insurers would have had to pay consumers almost $2 billion. If they had carved out the broker fees, as proposed in the two current bills, consumers would have gotten only about $800 million.

Landrieu's office did not immediately respond to our call for comment.

"[The bills] would water down the standard to a point where it becomes ineffective," said Sondra Roberto, a spokeswoman for the nonprofit advocacy group Consumers Union. The group, which also publishes Consumer Reports, recently urged members to oppose the bill.

The rebates have gotten relatively modest attention. Only 38 percent of the public is even aware of the rule's existence, according to a Kaiser poll.

Insurance companies have supported the two bills, claiming that the rebate rule, as it stands now, stifles jobs and actually drives up insurance premiums. A 2011 government report found that most insurance companies were, in fact, lowering their premiums to meet the requirements, as the administration had hoped.

While most insurance companies hit the 80 to 85 percent target, the few that didn't may be required to send out rebates this year.

"Some insurance companies pay an inordinate amount, as much as 40 percent, on administration and profit and not health care," Roberto said.

The rules on rebates differ slightly depending on whether the insurance comes from a large-group plan (employers with more than 100 employees), or a small-group or individual plan. In each case, insurance companies will be required to make all their costs publicly available so consumers can see how their premium dollars are spent.

The government granted insurance companies in seven states extra time to meet the requirements. Insurers that serve states with more rural populations, for example, tend to have higher overhead costs and cannot meet the requirement as easily, according to Eric Fader, a New York health-care lawyer. But the government decided that for all other states, enforcing the requirement wouldn't pose any risk to the market, and that the federal government didn't "need to coddle an inefficient insurance company," Fader said.

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