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Kansas, Oklahoma Insurers Won’t Get A Break On Rebate Rule

Jan 05, 2012

This story is part of a reporting partnership that includes Kansas Public RadioNPR and Kaiser Health News.

Kansas and Oklahoma are the seventh and eighth states to get the thumbs down from the federal government on their requests to phase in new regulations that could result in health insurance rebates to consumers.

Under the Affordable Care Act, companies that sell individual insurance policies must spend at least 80 cents of each premium dollar on health care or quality improvement for their members. Companies that fall short of the 80 percent standard will have to pay rebates to their customers to make up the difference.

Kansas Insurance Commissioner Sandy Praeger and Oklahoma Insurance Commissioner John D. Doak had asked the federal Department of Health and Human Services for waivers that would allow the state to slowly phase in the requirement.

Both requests were denied Wednesday. HHS official Steve Larsen says he's seen no evidence that the new requirement will destabilize the individual insurance market in Kansas. In fact, Larsen anticipates that none of the eight companies currently writing individual health insurance policies in Kansas will pull out of the state.

"There were four companies that were, to varying degrees, below the 80 percent," Larsen told reporters, "all of which we concluded were moving toward the 80 percent, or if they didn’t hit the 80 percent, were very profitable, and certainly could sustain paying rebates to consumers to make sure that consumers get value for their premium dollars."

But at a public hearing last March, Coventry Health Care of Kansas CEO Michael Murphy said his company was relatively new to the individual market, and would need extra time to meet the requirement: "Application of the 80 percent standard will result in unsustainable losses for Coventry's individual health plan business, and raise major concerns about our ability to continue operating this segment of business in the state of Kansas."

According to HHS estimates based on 2010 data, the four Kansas companies could have to pay more than $5 million in rebates to 35,000 customers between now and next August. But insurance commissioner Praeger doubts the rebates will be that much.

"I know it won’t be that high," Praeger said, "because I know that companies that were in the low 70's, by the end of 2011 were close to 80, so it won’t be that high."

Praeger anticipates that once companies get past the next couple of years, none of them will have any difficulty meeting the 80 percent standard. 

The nationwide advocacy group, Consumer Watchdog, had urged HHS to deny the Kansas request to phase in the new rules. Spokeswoman Judy Dugan says the 80 percent requirement is the only real financial protection for consumers in the Affordable Care Act.

"The whole idea of this requirement is to get insurance companies to operate more efficiently, and more on behalf of consumers, with less administrative cost—possibly a little less profit—and a lower cost of sale," Dugan said.

Dugan says it's possible that some consumers will get rebates this year, but she thinks the main benefit from the new requirement will be seen in the premiums people pay for individual insurance policies. To meet the 80 percent standard, Dugan expects companies to lower their premiums, or to at least hold down future premium increases. 

Of the 17 states that have applied to change the rebate rules, eight have been denied, five were approved with modifications, and three are still under review, according to documents from the Centers for Medicare and Medicaid. Only Maine got full approval for its request.

The states that are still under review are Texas, North Carolina and Wisconsin.

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