Starting in 2012, health insurance plans in Texas — and most of the rest of the country — may have to cough up millions of dollars in rebates to customers.
The rebates will come from health plans that spend too much on administrative costs instead of medical care. The change is part of the national health overhaul law, the Affordable Care Act.
But state officials in Texas and 16 other states have asked to push back the requirement for a few years.
Bob Vesey owns Packtech, a foam fabrication company that he started in 2003 in Grand Prairie, Texas, a town near Dallas. The small company has only three employees, and Vesey and his wife have to buy their own health insurance on the individual market.
Currently the couple pays $784 a month to Blue Cross Blue Shield, but the premium keeps going up every year, sometimes twice a year. "Right now I get these letters. I cringe every time I get an envelope from BCBS," Vesey says.
Vesey has his eye on the insurance rebate provision of the Affordable Care Act called the medical loss ratio, or MLR. In a nutshell, the MLR requires insurance companies to spend at least 80 percent of what they take in on actual medical care or quality improvement. The other 20 percent can go to overhead and profit.
"That's reasonable in the mind of any Texan I've ever met," says Blake Hutson, an advocate with Consumers Union in Austin, Texas. "And that 20 percent, you can go keep spending 20 percent on your administrative overhead, which is things like lobbying or paying CEO salaries. They can still spend money on those things, but they've just got to give us a baseline. They've got to give us 80 percent of our premiums on actual health care."
Insurance companies that now exceed the 20 percent mark for overhead expenditures will have to rebate an estimated $160 million next year to Texans who buy insurance on their own.
Vesey says he'd welcome that: "That would be wonderful. At least you'd know." Without the rebates, Vesey says he and his wife will only get relief after they get on Medicare.
But the Texas Department of Insurance has asked the federal government for a delay on the rebate plan. Under the Texas proposal, insurance companies would have three years to reach that 80/20 ratio. The state told the federal Department of Health and Human Services that the phase-in of the rebate program is necessary to prevent smaller companies from leaving Texas or going out of business.
The Texas Department of Insurance declined to comment for this story.
Robert Zirkelbach, spokesman for America's Health Insurance Plans, the national lobbying group for insurance companies, says that the new regulation tries to make insurers responsible for rising premiums, when really the problem lies with doctors, hospitals, and drug and device companies.
"The biggest issue is it doesn't get at the soaring cost of medical care," he says. "And instead it imposes a new arbitrary cap on health plan administrative costs. Some plans may have no choice but to exit the market altogether, and people could lose the coverage they have today."
More than 30 companies offer individual insurance in Texas. In contrast, Maine, the first state to win approval for its application to waive the requirement, has only three companies in its insurance market.
Consumer advocates say that even if a few Texas companies do drop coverage, it'll be less of a threat and more like good riddance.
Take, for example, Standard Life and Casualty Insurance. That company spends only 53 percent of premiums on medical care, with the rest going to overhead and profit, according to the state documents filed with the feds.
"I think [it] would surprise some Texas consumers that we have some plans out there that offer that little value," says Stacey Pogue of the Center for Public Policy Priorities in Austin. "The new rules that are put out would end business as usual for these types of low-value health plans, and that benefits all consumers."
Standard Life and Casualty did not respond to requests for comment.
For their part, Texas' Democratic representatives in Congress have sided with the consumer advocates, encouraging HHS to turn down the Texas request for a delay.
Austin Rep. Lloyd Doggett, who chairs the Texas Democratic delegation, disparaged the state's move as "nothing more than an early Christmas gift from Gov. Perry's allies to insurance companies."
Seventeen states asked the federal government for relief from the new 80 percent rule. The feds analyzed their insurance markets; six states were granted permission to phase-in the new rule gradually. But eight states were turned down. A decision on the Texas request is expected any day now.
DAVID GREENE, HOST:
Starting this year, health insurance plans may have to cough up millions of dollars in rebates to customers. The provision is part of the national healthcare law known as the Affordable Care Act. the provision says if insurance companies are spending too much on administrative costs and not enough on medical care, they have to give back some of the money. As Carrie Feibel of member station KUHF explains, insurance officials in many states have asked for permission to push back the requirement for a few years.
CARRIE FEIBEL, BYLINE: Bob Vesey is that guy that politicians keep talking about. He's a small business owner, an entrepreneur and a job creator. Vesey started his company Packtech in 2003. It's a foam fabrication company in Grand Prairie, near Dallas.
BOB VESEY: We do custom packaging for anything that needs to have protection inside of a carton.
FEIBEL: Packtech is small, only three employees. So, like many Texans, Vesey and his wife have to buy their own health insurance. Right now, the couple pays $784 a month to Blue Cross Blue Shield. Vesey says the premium keeps going up every year, sometimes twice a year.
VESEY: Right now, I get these letters and, you know, I just, I cringe every time I get an envelope from BCBS. I say, oh, here's another one. You just don't even want to get that mail. You just don't want to receive it.
FEIBEL: But this year he might be receiving some cash back from his insurance company, thanks to a provision of the Affordable Care Act. It requires insurance companies to spend at least 80 percent of what they take in, on actual medical care, or quality improvement. Everything else - overhead, profit, marketing - is limited to the other 20 percent.
Blake Hutson is with Consumers Union in Austin.
BLAKE HUTSON: That 20 percent, you can go keep spending 20 percent on your administrative overhead, which is things like lobbying or paying CEO salaries. They can still spend money on those things. They just got to give us a baseline. They got to give us 80 percent of our premiums on actual healthcare.
FEIBEL: But insurance companies don't like this. Those companies that now exceed the 20 percent will have to refund the difference to their policyholders, and get those checks in the mail by August of this year. In Texas, for example, 23 companies will have to refund an estimated $160 million dollars to people who buy their own insurance policies.
Bob Vesey says he'd welcome that.
VESEY: That'd be wonderful. I mean at least you'd know.
FEIBEL: Without the rebates, Vesey says he and his wife will only get relief after they get on Medicare.
VESEY: You know we're saying, God, got to get to 65. Got to get to 65. Can't handle this anymore, you know?
FEIBEL: But the Texas Department of Insurance has asked the federal government to delay the new 80 percent rule for three years. The state argued this is necessary to prevent smaller insurance companies from pulling out of Texas.
Robert Zirkelbach is with America's Health Insurance Plans, a national lobbying group. He says the new cap misses the point.
ROBERT ZIRKELBACH: All the data show that rising healthcare costs are being driven by rising prices for physician services, hospital costs, prescription drugs and new medical technologies. And this new requirement does nothing to address the soaring costs of medical care.
FEIBEL: In Texas, a third of the insurance companies don't even come close to limiting profit and overhead to 20 percent. Consumer advocates say those companies offer poor value, and if they do leave the market it'll be good riddance.
But Zirkelbach says that's unfair, especially for smaller companies. Those insurers often have higher overhead costs because they need to rely on brokers or advertising to find each individual customer.
ZIRKELBACH: What we're talking about here is an arbitrary cap on health plan administrative costs. And it's often those smaller insurance companies that would be hardest hit by this.
FEIBEL: Seventeen states asked the federal government for relief from the 80 percent cap. They're allowing six states to phase it in gradually. But eight have been turned down. A decision on the Texas request is expected any day now.
For NPR News, I'm Carrie Feibel in Houston.
GREENE: And Carrie's report is part of a project of NPR, KUHF and Kaiser Health News.
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GREENE: You're listening to MORNING EDITION from NPR News. Transcript provided by NPR, Copyright NPR.