Cigna must refund $2.3 million to Vermont customers
by Alan Panebaker vtdigger.org Cigna, a major health insurer of large businesses in Vermont, is on the hook for more than $2 million that it must return to its customers in the state under a provision of the federal health care law.
According to numbers released Thursday by the U.S. Department of Health and Human Services, 4,636 Vermonters will receive a rebate — averaging out to $506.04 a person (or $807 per family).
The rebate is required under a section of the federal Affordable Care Act which requires insurance companies to spend at least 80 percent (or 85 percent in the large group market which is generally insurance through large employers) on medical care.
If insurance companies do not meet this requirement, they have to refund the portion of the premium that exceeded the 20 or 15 percent limit on things like administrative expenses.
Companies insuring Vermonters in the small group and individual markets met the requirement and did not have to refund any money to their customers.
Cigna was the only insurance company that had to refund money to Vermonters. It covers the “large group” market of employers who employ 51 or more people. According to the Department of Health and Human Services, Vermont had the highest average per-person rebate for that market.
Steve Kimbell, commissioner of the Vermont Department of Financial Regulation, said he was surprised to learn insurers in Vermont did not meet the requirement.
“As far as I knew, all our major carriers were under [the threshold],” Kimbell said.
The state regulators may not have been aware of the issue because it occurred in the large group market. Kimbell said the state regulates the individual and small group insurance markets more closely than the large groups because it requires “community rating” for those markets — requiring insurance companies to charge the same premiums for people regardless of how healthy or old they are.
The larger groups use “experience rating” where insurance companies can charge a different rate for different people based on differences in their demographics, past health care utilization, medical status and other factors.
Kimbell said the department was looking into what businesses this will affect.
Nationwide, insurance companies in the large group market are required to return $386 million in rebates, which will go to employers who will in turn return the money to their employees.
Anya Rader Wallack, chair of the Green Mountain Care Board, which oversees health care reform in the state, said the failure to meet the federally set ratio could be a result of people seeking less medical care.
At the beginning of the year, insurance companies predict how much they will spend on medical care, so a decrease in utilization of health care, which the state has been seeing, could shift that balance to mean a higher percentage went to things other than medical care.
“It’s a result of a carrier spending less than predicted on actual payments to providers,” Rader Wallack said. “To call it excess administrative expenses I guess is one way of looking at it. The way I look at it is predictions of actual health care expense were much lower than anticipated.”
A spokeswoman for Cigna verified the amount owed to Vermonters was a little over $2.3 million. She said Thursday afternoon she was unsure why Cigna had failed to meet the federal requirement.
The company must pay the rebate by August 1. Kimbell said it will affect 27 companies in Vermont. As of Thursday afternoon, the Department of Financial Regulation was looking into who those were.
In a joint statement, Vermont's congressional delegation, Senators Leahy andSanders and Representative Welch said, “Insurance premiums should go toward providing care to people who get sick. That’s simply common sense.”
Nationwide, 12.8 million Americans will benefit from $1.1 billion in rebates under the 80/20 standard.
The medical loss ratio or 80/20 rule is a part of the controversial federal health care law which the US Supreme Court could strike down altogether next week.
The court issued opinions Thursday morning, but the ruling on the Affordable Care Act was not one of them. Observers expect a decision by next Thursday.
Twenty-six states challenged the constitutionality of the national health care law, arguing the law infringed upon states’ rights and individual liberties. They contended the federal government could not compel citizens to purchase health insurance under what is called the “individual mandate.”