KFF: Payers Will Issue $1.1B in Medical Loss Ratio Rebates in 2023

Payers will issue around $1.1 billion in medical loss ratio (MLR) rebates across commercial markets in 2023, KFF projected.

In the individual and small group markets, payers must spend at least 80 percent of their premium income on healthcare claims and quality improvement efforts, with the remaining 20 percent going toward administrative costs, marketing expenses, and profit. This threshold is 85 percent for large group insurers.

If payers do not meet the MLR threshold, they must return excess profits to health plan members in the form of rebates. The rebates issued in 2023 will be based on financial data from 2020, 2021, and 2022 and will go to people and businesses that bought health coverage in 2022.

KFF used insurer-reported preliminary data from Mark Farrah Associates to estimate 2023 MLR rebates. The data showed that payers will issue about $1.1 billion in rebates across all commercial markets.

Payers in the individual market are expected to issue $500 million in rebates, payers in the small group market will issue $330 million, and payers in the large group market will issue $250 million.

The total estimate of $1.1 billion is similar to last year when payers issued $1.0 billion in rebates. However, the 2023 estimate falls short of the $2.5 billion allocated in 2020 and $2.0 billion issued in 2021, the KFF brief noted.

The pandemic’s impacts are still influencing rebates, as the calculations include 2020 and 2021 data. Healthcare spending and utilization declined in 2020 due to elective care cancellations. Additionally, people forwent routine care to comply with social distancing guidelines or minimize exposure risks.

Payers had already set their 2020 premiums before the pandemic hit, meaning they were higher than the amount of care members actually used. Some payers also offered premium relief or waived out-of-pocket costs, which impacted their rebates.

The brief noted that final rebate notices will be mailed out by the end of September. Payers in the individual market can issue rebates in the form of a check or a premium credit. In employer-sponsored plans, the rebate may be shared between the employer and employee depending on how they share premium costs.

If rebates are less than $5 for individual plans or less than $20 for group plans, payers do not have to process the rebate.

Higher medical loss ratios in 2023 could mean premium increases for 2024 since payers may aim for lower ratios to see higher margins. Uncertainty around premium setting will likely continue in 2024 due to patient demand and potential Medicaid coverage losses that lead to coverage transitions, KFF researchers predicted.