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Nearly 4,400 small businesses in California will share in $3.5 million in rebates from insurance giant UnitedHealth Group Inc. this summer as insurers nationwide prepare to return millions of dollars to customers as a key benefit of the federal healthcare law kicks in.
The first of these California rebates, amounting to about $98 each for nearly 36,000 small-business employees and dependents covered by UnitedHealth, comes because the company's spending on medical care fell short of new government requirements.
Insurers must notify federal and state officials of how much they may owe policyholders by Friday if they failed to spend a minimum amount of customers' premiums on medical care last year. Consumer groups pushed for this provision in President Obama's Affordable Care Act to ensure that companies aren't raising premiums to pay for executive salaries, shareholder dividends and other expenses unrelated to customers' care.
Healthcare experts say the rebates probably will be modest on a per-person basis and most of the money may go to employers. As of Wednesday, UnitedHealth was the only insurer that had filed rebate information with the state Department of Managed Health Care. Other companies are expected to disclose the size of their customer rebates later this week and send out money by Aug. 1.
UnitedHealth, the nation's largest insurer, said checks will go out in July to those small businesses affected. The Minnetonka, Minn., company said that under the federal rules it did not owe rebates to individual policyholders or large employers in California.
Gerald Kominski, director of the UCLA Center for Health Policy Research, said these rebates are an important milestone since most other provisions of the federal law don't take effect until 2014, and policyholders have continued to face rising premiums. The average premium for employer coverage in California has increased 154% over the last decade, more than five times the 29% increase in the state's overall inflation rate.
"For the first time, a broad spectrum of California and America will feel a positive consequence of this legislation," Kominski said."When is the last time you got a rebate from your health insurance company? People have been waiting a long time for this."
California insurance officials said it's too early to estimate the overall amount of rebates statewide. Janice Rocco, the deputy insurance commissioner for health policy, said regulators will begin auditing insurers' information on expenses and profits next month to ensure that their rebate calculations are accurate.
However, the future of these rebates and the entire federal healthcare overhaul is uncertain as the U.S. Supreme Court considers the constitutionality of the law. A court ruling is expected next month.
California lawmakers passed a similar state requirement on medical spending, and state regulators have said those rules would stand even if the federal law is overturned. But insurers don't necessarily agree with that view.
Excluding California, insurers are expected to pay an estimated $1.3 billion in rebates to U.S. consumers and employers this year, according to a study last month from the Kaiser Family Foundation. The nonprofit group said the average rebate for individuals was an estimated $127 per person.
Under the federal and state laws, insurers must spend at least 80% of premiums collected on medical care for individual and small-group policies, which cover businesses with 50 or fewer workers. For 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.
In its state filing, UnitedHealth said it owed rebates because its medical-loss ratio for small businesses was 77.9% last year, short of the 80% threshold. UnitedHealth said its loss ratio on individual customers was 80.1% and 88.6% on larger companies, meeting the government requirements.
Cheryl Randolph, a spokeswoman for UnitedHealth, said 35,922 workers and their dependents are covered by the small-business rebates, but it's up to employers to decide how they share those savings under the federal law. Some employers may split the rebate money based on the percentage workers contribute to their annual premiums or they could reduce next year's premium by a similar amount. Not all small-business customers of UnitedHealth qualified for the rebate.
"We think our numbers reflect that we are pretty close to pricing in line with what we are seeing on the medical cost trend," Randolph said.
Rebates will vary for each company and kinds of policies. A spokesman for Health Net Inc. in Woodland Hills said its medical spending met the minimum requirements and that it doesn't expect to issue any rebates to its 1.1 million customers in California.
Patrick Johnston, president and chief executive of the California Assn. of Health Plans, said insurers are committed to issuing rebates, when necessary, but the rules don't address the larger issue of rising medical costs.
"Rebates are one way to adjust the price of insurance," Johnston said, "but the bigger issues are containing cost and extending coverage."