Small Businesses to Get IOUs From Health Insurers

Terry Gardiner

If you’re a hardworking small business owner who provides health benefits to your employees, there’s a chance your insurance carrier owes you money. And if it does, you can start looking for a check in the mail. Thanks to the Affordable Care Act, insurance companies are being held accountable to their customers in a brand new way — which means they’re expected to owe businesses and individuals a whopping $1.3 billion this year, according to a new report from the Kaiser Family Foundation.

The chances your business will get a piece of that are greater than one in four. Twenty-eight percent of small employers offering benefits in 42 states will receive a rebate for part of their 2011 coverage expenses by August 1, thanks to the Medical Loss Ratio (MLR) provision of the health care reform law.

The rule, effective since 2011, requires insurance companies to spend at least 80 percent of small groups’ premium expenses on patient care and quality improvement. That limits what they’re allowed to spend on administrative costs to 20 percent of premium contributions. If carriers exceed that limit, they must make up for it by handing out rebates for the difference.

This provision is meant not only to put hard-earned money back in Americans’ pockets, but to help make the health coverage market more efficient by eliminating superfluous expenses. And a more efficient marketplace means coverage can be offered at more affordable prices. Walt Rowen, owner of Susquehanna Glass Co. in Philadelphia, Penn., has already seen dramatically lower premium increases directly related to the rule’s impact.

As the third-generation owner of his family’s 102-year-old glass decorating business, Walt has experienced a number of huge rate increases to his small group policy. Several years ago he was even quoted a 130 percent increase. But since the passage of health care reform, he has seen savings he’s been able to reinvest in his business. Last year, his insurance company told him that because it had exceeded the Affordable Care Act’s cap on administrative spending, he would only face a 4 percent rate increase. “That was by far the lowest increase we’ve had in years,” Walt said. “In fact, over the past decade, we faced 10 to 15 percent increases each year. Without this provision, health insurance would be out of our grasp, which is unacceptable.”

Walt is right — it is unacceptable that small businesses’ premium costs have spiraled so far out of control over the past decade that more and more of them are being robbed of their ability to afford coverage for deserving employees. It’s a problem of great magnitude, and not just for small businesses, but for the economy at large. Small firms create the majority of net new jobs in the United States. But when health coverage costs are bleeding them dry, how are they going to keep up that trend?

A nationwide average of $76 per enrollee are projected to go to over a quarter of small businesses, with the biggest average refunds in Alaska ($517), Alabama ($203) and Oregon ($172). Insurers in eight states including Hawaii, Minnesota and North Dakota met their spending targets and won’t be issuing rebates.

By holding insurance companies accountable for how they spend Americans’ premium dollars, the Affordable Care Act is improving upon the coverage market as we know it. And that’s something small employers have to be thankful for.