Affordable Care Act

Texas Insurers Could Send Out $160 Million In Rebates Next Year — Maybe

Starting in 2012, health insurance plans in Texas may have to cough up millions of dollars in rebates to customers. The provision is part of the national health reform law, the Affordable Care Act. It will apply to health plans that spend too much on administrative costs instead of medical care. But state officials are quietly working behind the scenes to push back the requirement for a few years.

Bob Vesey is that guy. You know, the 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.

“We do custom packaging for anything that needs to have protection inside of a carton.”

Packtech is small, only three employees. So, like many Texans, Vesey and his wife have to buy their own health insurance on the individual market. Right now the couple pays $746 a month to Blue Cross Blue Shield. Vesey says 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, 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.”

Vesey has his eye on a 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. The other 20 percent can go to overhead and profit.

Blake Hutson is an advocate with Consumers Union in Austin.

“That’s reasonable in the mind of any Texan I’ve ever met. 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 just gotta give us a baseline.”

Insurance companies who now exceed the 20 percent will have to rebate an estimated $160 million dollars next year to Texans who buy insurance on their own.

Bob Vesey says he’d welcome that.

“That’d be wonderful. At least you’d know.”

But the Texas Department of Insurance has asked the federal government for a delay.

Under that plan, insurance companies would have three years to reach that 80 percent.

The state told the feds this is necessary to prevent smaller companies from pulling out of Texas.

When I asked for details about the request, the department wouldn’t grant an interview. Instead, I spoke with Robert Zirkelbach, of America’s Health Insurance Plans. That’s a national lobbying group for insurance companies.

“The biggest issue is it doesn’t get at the soaring cost of medical care.”

Zirkelbach says the MLR cap tries to make insurers responsible for rising premiums, when really the problem lies with doctors, hospitals, and drug and device companies.  

“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 thirty companies offer individual insurance in Texas.

Consumer advocates say that even if a few companies do drop coverage, it’ll be less 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.

Stacey Pogue is with the Center for Public Policy Priorities in Austin.

“Which I think would surprise some Texas consumers that we have some plans out there that offer that little value. 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.

So far, 17 states have asked the federal government for relief from the MLR provision. The feds will probably rule on the Texas request sometime in January.  

From the KUHF Health and Science Desk, I’m Carrie Feibel.


Florian Martin

Florian Martin

Business Reporter

Florian Martin is currently the News 88.7 business reporter. Florian’s stories can frequently be heard on other public radio stations throughout Texas and on NPR nationwide. Some of them have earned him awards from Texas AP Broadcasters and the Houston Press Club. Florian is a native of Germany. His studies...

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