If you believed the politicians who argued for Obamacare, you were expecting a sizable refund this year. They claimed that it was greed from the insurance company executives that was causing health insurance premiums to be so high.
Buried inside the 906 pages of Obamacare is the Medical Loss Ratio (MLR.) This part of Obamacare requires insurance companies to refund a percent of the premiums that were charged for qualifying Major Medical insurance plans. If they did not spend at least 80% of the premium funds they accumulated for policies in the individual market or 85% of the premium funds they accumulated for policies that were sold to groups, insurance companies are required to refund the difference.
The refunds were calculated last March. Obamacare gave insurance companies until August 1 of 2012 to mail those refund checks if they charged too much. That means that insurance companies were allowed to hold that money and earn interest for an additional 8 months.
Some Americans will get a small refund. The average check will be for $126.81. Most Americans will not see a MLR check. One of the insurance companies with which I work has prepared a FAQ sheet that will answer most questions.
Those Americans who will not see any refund checks will not see them for two reasons.
The politicians implied that it was greedy insurance company executives that established premiums. That is incorrect. The executives manage the daily activities of the insurance company but the ones who set the base premiums are called, “Actuaries.” They are really smart mathematicians. An Actuary was once defined to me as, “… an accountant who did not have the personality to be a CPA.”
In defense of the insurance companies, if the average refund is only $126.81 and most Americans are not due any refund, the Actuaries must be doing the math right. The only way for Actuaries to set premiums so close to the target that Obamacare established was for them to do a pretty good job predicting how much they would have to collect in order to pay medical costs.
The other reason many Americans will not see a refund check this month is that the refunds are payable to the entity that paid the insurance company. If you have an individual health insurance policy, you pay your insurance company directly. The refund check will be made payable to you.
However, if you have group health insurance through your employer. Your employer collects premiums from all the employees but the check that is sent to the insurance company is a company check. The refund will be made payable to your company. It will be up to your employer to decide if you will get a refund.
Some people assume that the 20% that insurance companies are allowed to keep is pure profit. That is incorrect. That is the amount that the insurance companies are allowed to apply towards their overhead expenses. In addition to putting money into their state mandated reserve funds, they must pay salaries, supplies and utilities out of that money. Profits and bonuses are calculated only after all the required bills have been paid.