As Insurers Sit on Extra Cash, Are Premium Relief and MLR Rebates the Best Use of Funds?

By Megan Houston and Sabrina Corlette

As much of the U.S. economy sputters in the wake of the COVID-19 pandemic, one industry appears to be thriving: private health insurers. Major insurers are experiencing significant profits, as many people have delayed or canceled elective procedures, checkups, and other health care services, while the costs associated with COVID-19 treatment have been lower than anticipated. Fortunately, for consumers, the Affordable Care Act prevents insurers from pocketing all of this windfall. First, the law limits the portion of premium dollars that insurers can translate into profits, administration, and marketing (called the “medical loss ratio” or MLR). For individuals and small employers, this means insurers must spend at least 80 percent of their premium revenue on health care services (for large employers, they must spend at least 85 percent). Insurers who fail to meet this standard are required to return the extra funds to policyholders in the form of rebates. Second, the law encourages state insurance regulators to conduct an independent, comprehensive review of insurers’ proposed premium rates, and to reject any unreasonable rate increases. Furthermore, recognizing that insurers have money to spend right now, CMS recently issued guidance making it easier for insurers to return money back to policyholders in the form of temporary premium reductions for 2020 coverage.

But is a month or two of premium relief, or a medical loss ratio rebate check, where we should be directing insurers’ excess cash right now? Although MLR rebates are projected to be the highest-ever in 2020, the average amount returned to each policyholder will only be an estimated $340. To be sure, in these tough times, this would be a nice unexpected check to receive in the mail – enough to cover a family’s grocery bill for a week or more – but it would be hardly life changing. Also, due to the way the MLR formula is designed, the profits insurers are making today won’t be seen in people’s rebate checks until the Fall of 2021.

We are in the midst of the largest global pandemic of our lifetimes. A few hundred dollars in premium relief or rebate checks that won’t arrive until the Fall of 2021 will not help us meet the needs of the moment. Instead, policymakers should consider taking advantage of insurers’ excess cash to support our underfunded public health infrastructure so that we can effectively bring this virus to heel.

One area in desperate need of a financial infusion is COVID-19 testing. Experts have been clear and consistent that widespread and reliable COVID-19 testing is critical in order for the economy to responsibly reopen and for students and teachers to safely return to school. But without a comprehensive federal testing strategy or resources, states have been left to design, finance, and implement their own testing programs.

Insurers, however, have been given a pass on paying for much of this COVID-19 testing. While one of the Congressional relief packages required insurers to fully cover the cost of COVID-19 testing with no cost-sharing burden, the Trump administration interpreted this requirement to not apply to asymptomatic employees receiving tests in order to return to work. Furthermore, some reports have indicated that insurers have been unfairly imposing restrictions or even denying coverage for COVID-19 testing. Even if health plans did pay for the testing of essential workers, it still presents employees with an unfair financial burden. If we need workers in industries like meat packing, child care, and schools to undergo regular COVID-19 testing, should those employees be responsible to bear the brunt of this cost in the form of premium increases next year? And what about essential workers who are uninsured, or whose coverage comes from a spouse’s job?

As House Democrats launch an investigation into whether insurers are meeting the coverage requirements, states can and should call on private health insurers to be their partners in their return-to-work and public health testing efforts, ideally through a pooled, broad-based funding arrangement. A reliable source of funding for testing would allow for a safe way for kids and teachers to go back to school, which will likely have a much bigger return on investment for families than a couple hundred dollars in premium relief from insurers. It is long past time for policymakers to ask insurers to play their part in combating the pandemic.

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The opinions expressed here are solely those of the individual blog post authors and do not represent the views of Georgetown University, the Center on Health Insurance Reforms, any organization that the author is affiliated with, or the opinions of any other author who publishes on this blog.