Is ObamaCare Helping Private Health Insurance Beneficiaries Get a Better Deal?

New estimates suggest that health insurers will pay out more than $1 billion in rebates this year due to a provision in the 2010 health care overhaul.

A success for ObamaCare? Maybe not. The rebates don't account for premium increases we've already seen during the administration's time in office. And pressure created by the provision, which caps the percentage of each premium dollar that can be spent on profit, marketing, and administrative costs, is likely to contribute to rising premiums rather than control them. 

The health care law's medical loss ratio (MLR) rule requires health insurers to spend 80 percent of individual and small group plan premium revenues on "clinical services." Large group plans must spend 85 percent of their premium dollars on the same. Insurers who fail to meet those ratios must rebate the difference to customers. The Kaiser Family Foundation estimates that those rebates will total about $1.3 billion this year, with an average rebate of about $39 per person in the individual market. Overall rebates will average about $127 per person, though rebates in the large group market will go to businesses rather than directly to individuals. 

A little over a billion dollars in rebates isn't nothing. But in the context of recent increases in health insurance premiums, it's close. That's especially true considering President Obama's 2008 campaign promise that under his administration health insurance premiums would be reduced by an average of $2,500. As Chris Jacobs, a Republican Senate staffer with the Joint Economic Committee, points out, premiums have continued to go up since Obama took office, from $12,680 in 2008 to $15,073 in 2011. 

We may see more rebates in coming years. But the existence of rebates does not necessarily indicate that health insurance customers are getting a better deal. It is possible that in the absence of the spending regulations, premium prices would have been even lower than premiums minus rebates under an MLR rule.

Indeed, the rule actually creates significant pressure to increase premiums over time: The discourages insurers from certain cost-saving activities and oversight by counting them as administrative costs. And because profits are capped as a percentage of premiums, the only way to expand profits is to increase premium revenues. So over time we'll probably see more wasteful health spending and more expensive premiums as a result of the rule. But at least people will get rebates. 

Futher reading: MLR regs are so potentially restrictive that the Congressional Budget Office warned that, if the spending requirements were set any higher (as some legislators had suggested), the requirement would be "likely to substantially reduce flexibility in terms of the types, prices, and number of private sellers of health insurance."