New York’s insurance companies pay more in rebates than insurers in other states, according to new data analyzed by the Kaiser Family Foundation. In New York, insurers are required to spend at least 82 percent of the money they collect from customers on medical care. This is called the medical loss ratio (“medical loss” is the insurance term for money spent on your medical care). If the company’s medical loss ratio is lower than 82 percent (for example, if it only “lost” 70 cents of every dollar by providing medical care) it is required to send rebates to customers. The rest of the money can be used for administrative costs, like salaries and marketing. The average family in New York that got a rebate for 2015, the last year for which we have data, received $149.
The medical loss ratio is one of the ways in which New York State ensures that customers get value from insurance companies. It creates a small incentive for insurance companies to spend money on actual medical care. It also helps reduce the incentive insurance companies have to avoid or drop sick customers. There is a limit to how much money they can avoid spending on care. It’s a great consumer protection that the entire country now benefits from, thanks to the Affordable Care Act.
The medical loss ratio can also help regulators in their quest to keep premiums at reasonable levels. New York’s Department of Financial Services is currently deciding what insurance companies will be allowed to charge in 2018 (see our explanation of the rate review process here). Kaiser’s analysis shows that in New York’s individual market, Affinity, Fidelis, and MVP all had to pay big rebates for 2015. Each of those companies has asked for and received hefty rate increases over the past few years (see the chart below).
|Premium Increases for Insurers Paying Medical Loss Ratio Rebates in 2015|
In 2015, when these companies were making their 2016 requests, they estimated that their medical costs were going to go up so much that they needed customers to pay higher premiums to make ends meet. Now that we have real data instead of estimates, we know that they actually spent less on medical care than expected in 2015. These companies should either have to make an especially strong case that they need higher premiums to cover customer care in 2018, or they should be told that their requests are too large.