Health law requires insurers to spend premiums on patients -- or pay rebates

Patient record form with stethoscope iStockphoto

(CBS News) LOS ANGELES - You've probably never seen a rebate check from your health insurance company. But, for the first time, many consumers and businesses will be getting checks over the next few weeks. There's a little known part of the health care reform law that requires insurance companies to spend 80 percent of their premiums on health care or reimburse the customer.

Earlier this month, Jamie Court got a check in the mail from his health insurance company. It was for more than $4,000.

"It's confirmation that insurance companies took too much of what I paid," Court said.

He joked, "You'll never kick a $4,000 check from the insurance industry out of your bank account."

Court runs a non-profit consumer watchdog organization in Santa Monica, Calif. He pays nearly $250,000 per year to provide health coverage for his 14 employees and their families.

"What we got back was a very small percentage of our overall premium," he said.

He got the rebate because his insurer, Anthem Blue Cross, fell short of the so-called 80/20 rule. It requires insurance companies to spend at least 80 percent of the money they collect in premiums on actual medical care. No more than 20 percent of premiums can be spent on salaries, bonuses, and advertising.

In California, Anthem says it spent 79.9 percent on health care -- so they had to refund 0.1% of premiums.

The idea was to force health insurers to get rising administrative costs under control.

But industry spokesperson Robert Zirkelbach says that's not the problem.

"What we're paying for physician services, hospital services, new medical technologies, prescription drugs -- that's what's really driving the rise in insurance premiums," he said.

Overall, 14 percent of insurance companies owe rebates, including some of the largest: Aetna, Cigna, Humana, and United Health Care.

But don't expect a check in your mailbox anytime soon. Most people get their health insurance from their jobs, so employers get the bulk of the rebate checks. They can use them to offset future premium increases or improve benefits.

Court plans to put his $4,000 back in his business' bank account.

"Even though it's low, it's nice to have the money," he said.

The largest insurers will have to pay out more than $1 billion. The average rebate is $151.

  • Ben Tracy

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