Private Insurers Expect to Pay $1.1 Billion in Rebates This Year for Setting Premiums Too High Relative to Medical Costs

Private insurance companies are expecting to pay out about $1.1 billion in rebates this fall under an Affordable Care Act (ACA) provision that requires insurers to spend the bulk of customers’ premium payments on care, a new KFF analysis finds.

Rebates are based on insurers’ experiences over the previous three years. This year’s estimated total is similar to the $1 billion paid out last year, but well short of the $2.5 billion record total paid out in 2020 and $2 billion paid out in 2021. 

Insurers in the individual market expect to owe about $500 million to consumers, including those with ACA marketplace plans, while those in the small-group market expect to owe about $330 million and those in the large group market expect to owe about $250 million. Insurers will determine the final amounts later this year and will issue the rebates to eligible consumers and purchasers in the fall.

The rebates are the result of insurance companies not meeting the ACA’s medical loss ratio threshold, which requires insurers to spend at least 80 percent of premium revenues (85% for large group plans) on health care claims or quality improvement activities. 

This year’s rebates reflect the continued impact of the COVID-19 pandemic, which led to much lower medical-loss rations in 2020 as many people skipped care amid stay-at-home orders and medical offices’ closures.

The estimates are based on an analysis of preliminary data reported by insurers to state regulators and compiled by Mark Farrah Associates.