Payers Expected to Issue $1B in Medical Loss Ratio Rebates in 2022

Payers will issue about $1 billion in medical loss ratio rebates across the individual market, small group market, and large group market in 2022, according to research from the Kaiser Family Foundation (KFF).

Researchers estimated 2022 medical loss ratio rebates using insurer-reported preliminary data from Mark Farrah Associates. Since medical loss ratio rebates are based on a three-year average, 2022 rebates are calculated using financial data from 2019, 2020, and 2021. Individuals and employers who bought healthcare coverage in 2021 will receive the rebates.

Payers in the individual market are estimated to issue the highest rebates of $603 million. According to the KFF issue brief, these rebates will be distributed among 4.3 million members, with each receiving an average of $141.

Payers in the small group market will issue $275 million to 1.8 million members, with members set to receive $155 each. Large group market payers will distribute $168 million in rebates, with 2.2 million individuals each receiving $78.

The 2022 estimated rebates are smaller than those issued in 2020 and 2021, but larger than those issued between 2013 and 2018.

Payers issued a total of $2.5 billion in rebates in 2020 and $2 billion in 2021. Generally, small group and large group market rebates have seen little change, while individual market rebates tend to be higher and fluctuate more, the researchers said.

Payers must issue rebates if they do not meet the medical loss ratio threshold, which requires them to spend a certain amount of premium dollars on healthcare claims and quality improvement efforts. Payers in the individual and small group markets have a threshold of 80 percent, while those in the large group market have an 85 percent threshold.

In 2021, individual market insurers had high medical loss ratios and spent an average of 88 percent of their premium income on health claims and quality improvement efforts. However, plans were generally more profitable in 2019 and 2020, which are included in the calculations for the 2022 rebates.

The 2022 rebates also reflect impacts from the COVID-19 pandemic, which payers felt during 2020 and 2021.

Healthcare spending and utilization decreased in 2020 as hospitals and providers canceled elective care. In addition, some individuals forwent routine care to avoid exposure to the virus. However, payers had set their 2020 premiums before the pandemic hit, leading many of these premiums to be over-priced relative to the care members were receiving.

For this reason, some payers offered premium relief and cost-sharing waivers, which negatively affected their rebates, KFF researchers noted.

Rebates in 2022 may be lower than in previous years because it is the first year in a while that does not include data from 2018. Payers on the individual market had a profitable year in 2018 due to excessively high premiums and uncertainty about the status of the Affordable Care Act.

The rebate amounts in the issue brief are preliminary, as rebates or rebate notices will not be sent out until September 2022. Individual market insurers can issue rebates through a check or premium credit.

Due to the individual market seeing a higher medical loss ratio in 2021, premiums may increase in 2023 as payers may aim for lower medical loss ratios to see higher margins, the researchers predicted. High inflation rates may also increase provider prices, contributing to higher premiums.

As insurers are setting 2023 premium rates, they must consider continuous pandemic effects, the uncertainty of the future of American Rescue Plan Act premium subsidies, potential high demand for care, and the health impacts that forgone care may have inflicted on members.

“If insurers overshoot their premiums amid this uncertainty, they will again be required to issue rebates to enrollees under the Affordable Care Act,” the brief concluded.