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Health insurers owe rebates to many California policyholders

Anthem Blue Cross, Blue Shield of California and Kaiser Permanente are to distribute more than $50 million in rebates across some 1 million California customers.

June 02, 2012|By Chad Terhune, Los Angeles Times

Anthem Blue Cross owes some California policyholders nearly $40 million in rebates and nonprofit rival Blue Shield of California owes about $11 million under a requirement of the federal healthcare law.

Nationwide, insurers had to notify federal and state officials by Friday of how much they owe customers if the companies failed to spend a minimum amount of customers' premiums on medical care last year. Insurers must pay these rebates by Aug. 1.

The $51 million in rebates disclosed Friday by two of the state's biggest insurers will be shared among nearly 1 million customers statewide. Nonprofit Kaiser Permanente reported that it owes $280,000 statewide.

Not all of an insurer's policyholders will get rebates, and the amounts will vary widely.

Lawmakers and consumer advocates pushed for the rebates as part of the 2010 Affordable Care Act to ensure that companies aren't raising rates to pay more for executive salaries, shareholder dividends and other expenses unrelated to customers' care. They also hoped these rules would hold down future rate increases and force insurers to squeeze out excess costs.

"This requirement has been very successful so far," said Timothy Stoltzfus Jost, a law professor and health policy expert at Washington and Lee University. "Premiums are starting to come down a little bit because insurers are realizing if premiums run ahead of medical costs they have to give the money back. Health plans are having to become more efficient."

Under the federal law and similar state rules, insurers must spend at least 80% of premiums on medical care when dealing with individual and small-group policies, which cover businesses with 50 or fewer workers. When dealing with larger employers, insurers must spend at least 85% of premiums on medical expenses. Employers that self-insure are not subject to these requirements, which are referred to as a medical loss ratio.

Anthem Blue Cross, the second-biggest insurer in California with about 3.6 million customers, said it owes rebates to 38,175 small businesses totaling $38.6 million. That's because the unit of WellPoint Inc. spent 77.5% of premiums on their medical care, below the 80% requirement. Those small employers cover 323,585 employees and family members.

The small-business average rebate per person is $119, to be split between the employer and the worker. Companies are expected to share the rebate money based on the percentage workers contribute to their annual premiums.

Anthem said it owed an additional $1.3 million in rebates across 407,429 individual customers, or about $3 per person on average. "Predicting the cost of care is an inexact science because there are many variables, which can cause actual costs to be higher or lower than expected," said Darrel Ng, a spokesman for Anthem Blue Cross.

Blue Shield, the state's third-largest health insurer with 3.3 million members, said it owed $10.8 million in rebates to 260,671 customers who purchased individual and family policies. That's because it spent 78.2% of premiums on their medical care last year, short of the 80% requirement. The rebates are expected to be about $42 per person on average.

The San Francisco company said it did not owe rebates to small and large employers last year.

Kaiser, the state's largest nonprofit health insurer with about 6.6 million customers, said it owes about $280,000 to 21,800 individual customers, or about $13 per person on average.

Its medical spending for those plans was 79.6% last year, falling just short of the government requirement.

Earlier this week, UnitedHealth Group Inc. disclosed that it owed $3.5 million in rebates to nearly 4,400 small businesses in California. Health Net Inc. in Woodland Hills said it didn't owe any rebates to its 1.1 million customers in the state.

Even with the new rules on rebates, state insurance officials are still pushing for a proposed ballot measure that would give state regulators authority to deny rate increases. More than 30 other states already have that regulatory power.

"The medical loss ratio, while important, doesn't prevent excessive rate increases," said Janice Rocco, California's deputy insurance commissioner for health policy. "Companies can still have administrative expenses approaching 20%."

Consumer Watchdog, a Santa Monica advocacy group, turned in 800,000 signatures last month to qualify the ballot initiative for the Nov. 6 election. County election officials are verifying the signatures.

Insurers, as well as hospital and physician groups, oppose the ballot measure on the grounds that it would create a costly new bureaucracy and put too much power into the hands of an elected insurance commissioner.

Patrick Johnston, president and chief executive of the California Assn. of Health Plans, said "further political price control is counterproductive."

chad.terhune@latimes.com

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