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Originally published July 30, 2012 at 10:05 PM | Page modified July 31, 2012 at 12:56 PM

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Insurance rebates give health law a lift

Insurers are required to give out annual rebates by Aug. 1 if less than 80 percent of premium dollars they collect go toward medical care. The threshold is 85 percent for insurers covering large employers.

The New York Times

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Even though the individual market for health insurance would be the largest pool in the... MORE
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Lucia Harkenreader's check landed in her mailbox last week: a rebate of $456.15 from her health insurance company, with a letter dryly explaining that the money came courtesy of the federal health-care law.

"It almost looked like junk mail," said Harkenreader, a tax accountant in Mountain Top, Pa., who said she did not love the overall law but was pleased at the unexpected windfall. "If this is part of Obamacare, I'm happy that somebody is finally coming down on the insurance companies and saying, 'Look, let's be fair here.' "

The law requires insurers to give out annual rebates by Aug. 1, starting this year, if less than 80 percent of premium dollars they collect go toward medical care. The threshold is 85 percent for insurers covering large employers.

As a result, insurers will pay out $1.1 billion this year, according to the Department of Health and Human Services, although most of it will not go to individuals. The average rebate will be $151 per household, with the highest average amounts going to residents of Vermont ($807 per family), Alaska ($622) and Alabama ($518). No rebates will be issued in New Mexico or Rhode Island, because insurers there met the 80/20 requirement.

In Washington state, 7,681 residents are due rebates, for a total of more than $594,000, according to federal figures. Wisconsin-based Time Insurance must pay a total of $432,333 to 4,939 individual policy holders who will receive an average amount of $161. In the large-group market, UnitedHealthcare of Washington, whose parent company is in Minneapolis, will rebate a total of $161,698 to 2,742 residents, for an average payment of $303.

While the percentage of insurance companies that owe rebates this year is relatively small, about 14 percent, many giants of the industry are on the list. They include Aetna, Cigna, Humana and UnitedHealthcare.

President Obama is highlighting the rebates as a tangible early benefit of the controversial legislation; on the day the Supreme Court upheld the law as constitutional last month, he said millions of Americans would see rebates because their insurance companies had "spent too much on things like administrative costs and CEO bonuses, and not enough on your health care."

So is your check in the mail? Don't count on it.

Self-insured employers, which cover more than half the nation's workers, are exempt from the new rule, as are Medicare and Medicaid. And of 75 million people in health plans subject to the rule, only about 17 percent, or 12.8 million, will see a rebate this year, according to the Obama administration.

Many who buy coverage directly from insurers, such as Harkenreader and other self-employed people, are receiving checks.

But in most cases rebates are being sent to employers, who can choose to put them toward future premium costs instead of distributing them to workers.

"I've been trying to explain that to people — that very few people would be getting a check," said Timothy Jost, a Washington and Lee University law professor who is an expert on the health-care law.

Still, Jost and others say the rebate provision could prove a potent selling point for a law that remains unpopular with many Americans, not to mention a well-timed tool for Obama's re-election campaign. Premiums — and anger toward insurance companies — continue to rise: The cost of employer-sponsored family health plans jumped by 9 percent last year to more than $15,000, according to the Kaiser Family Foundation.

For Harkenreader, 53, who is putting a son through college, the rebate helps soothe the frustration she feels toward her insurer, Golden Rule, which is owned by UnitedHealthcare.

"It seems like the health-insurance companies really just don't have any consideration for the cost out here," said Harkenreader, who pays about $480 a month for a high-deductible plan, up from $400 last year. "What costs have gone up to justify that rise in premium? I'd love to know. Did you give your people a raise? I guess your light bill went up?"

Jost said he had heard "quite a bit of anecdotal evidence of insurers giving really low premium increases this year" — a sign that the rebate rule might be having an effect. (Rebates this year are based on the share of premiums that went to administrative costs in 2011.)

Insurance companies say the rebate requirement does not address swiftly rising medical costs, which they say are the main reason premiums continue to increase.

"Placing an arbitrary cap on administrative costs is going to do nothing to make health care more affordable," said Robert Zirkelbach, a spokesman for America's Health Insurance Plans, the industry trade group. "There's a lot of misinformation out there."

Critics also say the rule could drive insurers with high administrative costs out of some markets if they are not given more time to meet the 80/20 standard, potentially leaving customers in the lurch. That concern factored into a decision by the Department of Health and Human Services to allow insurers in several states to spend a higher portion of premiums on overhead for now. Those states are Georgia, Iowa, Kentucky, Maine, Nevada, New Hampshire and North Carolina. Eight other states sought but were not granted a reprieve.

Employers can put the rebates toward future premium costs, share them directly with workers or use them to enhance benefits. Insurers also have the option of directly reducing future premiums instead of sending out rebates.

While the rebates might win over some opponents of the health-care law, they were too limited to have much impact, said Robert Blendon, a professor of health policy at Harvard. Polls have found that most people believe the law will drive premiums up.

"My view is the number is too small," Blendon said. "Most people have already come to some judgment about the law, and they are moving on to other things."

Seattle Times health reporter Carol Ostrom contributed

to this report.

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