A Billion Dollars Saved by Health Care Reforms

Money Bag

The Federal Patient Protection and Affordable Care Act, which was signed into law by President Obama on March 23, 2010, contains provisions which require health insurance companies to dedicate a minimum of 80% of their funds to paying claims involving medical care. This section of the law is known as the medical loss ratio. Funds which have not been allocated to paying medical care claims, or quality improvements, must be returned to consumers as a refund or a discount applied to premiums paid the following year. As a result of the Patient Protection and Affordable Care Act, consumers are expected to receive a total of $1.3 billion in refunds this year alone.

The consumers that receive the refunds under Patient Protection and Affordable Care Act regulations include both businesses and individual consumers. However, employers which receive refunds are under no obligation to pass these funds onto their employees. Below you will find a breakdown of which groups stand to gain the greatest refunds from their health insurance companies.

  • Large Employers: 7.2 million people ($541 million averaging $72.13 each)
  • Small Employers: 5 million people ($377 million averaging $75.40 each)
  • Individual Policyholders: 3.4 million people ($426 million averaging $125 each)

Please note that the above figures are rounded as final statistics were unavailable at the time of this post. Large employers, which are self insured, are exempt from the health insurance spending requirements contained in the PPACA. Health insurance companies which serve the largest employers are required by law to spend 85% of their collected premiums on payments for medical claims.

Tentative figures for major health insurer refund liabilities under the Patient Protection and Affordable Care Act are below.

  • UnitedHealth: $307 million
  • Aetna: $177 million
  • WellPoint: $94 million
  • Coventry: $50 million

Although the major health insurance companies listed above are responsible for nearly half of the total $1.3 billion industry-wide refunds, smaller health insurance companies are responsible for the remaining refunds.

While provisions of the PPACA are intended to protect consumers, it is important to note that seventeen states applied for waivers from the 80% minimum medical care reimbursement spending requirements. Of the applicants, only seven states received Federal approval.

In early summer the final statistics regarding the health insurance refunds will be produced by the Federal Government. However, initial statistics indicate consumers will benefit from such health insurance spending requirements. These consumers include many businesses and especially the individual or private policyholders which pay for their health insurance premiums without the support of an employer.

Keep in mind that these anticipated refunds could potentially be invalidated by the United States Supreme Court in its decision regarding the constitutionality of the Patient Protection and Affordable Care Act. If this were to happen, these refunds would not got to businesses and individuals, but instead add more cushion to an already significant profit margin enjoyed by many health insurance companies.