Am I Dreaming? Or Did My Insurance Premiums Just Drop?

Dear Cheasty,

Hello. I work for a small company and one of my co-workers just told me that this year our insurance premiums are being reduced. I asked some more questions and he told me that our entire office might even get a refund check in the mail from the insurance company this year. I was delighted to hear that of course! I was wondering, though, what’s going on? Is this true? And if it is true, is this change because of health reform?

Thank you,
Laura from Houston

Dear LFH,

I know where you’re coming from. Reduced premiums? Getting a refund check from your insurance company? That’s NOT how the world as we know it works – surely we simply failed to notice the rabbit hole we must have fallen into! Well hang on to your shorts, LFH, because have I got some great news for you.

First of all, yes.

Health reform – also known as “Obamacare,” “the Affordable Care Act,” and “the ACA,” is responsible for some reductions in premiums and refund checks from insurance companies coming this year. While I wish I could guarantee you that your personal premium would indeed be reduced, I can’t speak to your individual case. I can say, however, that some small businesses in Texas have indeed seen reductions in their premiums in the last few months.  This is great news, but not a guarantee that premiums will drop for everybody. In fact, rather than reducing premiums across the board, it is more accurate to say that Obamacare is slowing the ludicrous speed at which premiums rise over time.  It is doing this in two ways – through “rate review” and the “80-20 rule”.

Let’s discuss them one at a time to fully explain.

Believe it or not, prior to this law, insurance companies could raise premiums as much as they wanted to, and with no explanation for why they were going up.  I received a letter from a guy who’d seen a 700% increase in his policy over 6 years even though he had never gotten sick during that whole time. Outrageous!

Now, because of a provision called “rate review” insurance companies can still raise premiums, but they must justify rate increases over 10%.  Those justifications are posted publicly – so you can see why rates are going up – and the justifications are reviewed by the Texas Department of Insurance to determine if the increase is based on reasonable assumptions and solid evidence.  For insurance companies, this will be an unprecedented level of scrutiny and transparency, and will do two things: (1) it will help keep you the consumer informed, and (2) it will help hold down premium increases over time.  Nice.

Now for the fun stuff: REFUND CHECKS!!

This is pretty exciting, and it’s all thanks to a provision in Obamacare called “the 80-20 rule”. You may have heard of this.  Until recently some people were (and some still are) calling it “medical loss ratio” or “MLR” for short, but that name doesn’t make a lot of sense. What it really means is this:

Insurance companies now have to spend at least 80% of all the money they collect in premium payments on actual medical care, and they can spend no more than 20% of that money on administration and profits. 

For some insurance companies, this isn’t a problem – they already hit that mark – but others that offer less value to their customers are going to have to make some big changes to how they do business. And here’s the kicker!  Those companies that don’t hit the 80-20 mark will have to issue refunds to their customers, starting August 1st of this year. In fact, some companies are reducing premiums now to avoid sending refunds out later.

This is probably what happened with your company’s insurance, LFH. That’s great news for Texans, especially in these tough economic times!

So, Laura from Houston, I hope these short paragraphs have helped explain exactly what might be going on with your insurance premiums this year. I wish I could promise that all of my readers would get reductions in premiums and a big check in the mail, but at least we know that many Texans will. And most importantly, I hope you feel better knowing that Obamacare is taking some really important steps toward improving the way health care works in this country. We’ve already seen some really great benefits so far, and more are coming in 2014.

So, keep your eyes peeled for a great health care future!

To a well and healthy Texas,
Cheasty

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