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President Barack Obama is trying to get ahead of a steady rain of attacks on his signature health care reform law, the Affordable Care Act. With House Republicans voting to delay key elements of the law and Americans for Prosperity, a well-funded conservative group, running television ads to stir sentiments against it, Obama focused on health care when he spoke last week at the White House briefing room.
Among the changes due to the law, the president touted the tangible benefit of consumer rebates from insurance companies that have spent too much on administrative overhead.
"Last year, millions of Americans opened letters from their insurance companies," Obama said. "But instead of the usual dread that comes from getting a bill, they were pleasantly surprised with a check. In 2012, 13 million rebates went out, in all 50 states. Another 8.5 (million) rebates are being sent out this summer, averaging around 100 bucks each."
In this fact-check, we examine whether millions of Americans received rebates on the scale the president described.
Why we have rebates in the first place
Part of the law requires health insurance companies to spend at least 80 percent of each premium dollar to provide care, rather than cover administrative expenses. There’s some wiggle room on the 80 percent, but by and large, this is called the medical loss ratio and people speak of it as the 80/20 rule. If an insurance company spends less than 80 percent, it must send the difference back to the customer. That is the rebate.
Most insurers already meet the standard. The Government Accountability Office said that in 2010, two-thirds of the firms passed muster. But behind that figure was an important difference among insurance policies. For companies selling to large employers with over 100 workers, 77 percent were in compliance. For those selling to small employers with 100 or fewer workers, 70 percent met the grade. But in the individual market, where people buy their insurance directly and don’t get it through their employer, only 43 percent of firms met the 80/20 rule.
At one level, the official data tells all. The Centers for Medicare and Medicaid Services track all rebates and indeed, in 2012, insurance companies returned $1.1 billion to about 12.8 million policy holders. In 2013, the dollars are about half as much and about 8.5 million policyholders benefit. The average rebate is $98, which is pretty close to Obama’s $100. Over 2.7 million households in the individual market received a rebate directly.
We should note, though, that 61 percent of the rebate money went to employers. That is to be expected since about 85 percent of all people with private insurance get their coverage through their employer. The employer buys the insurance so the employer gets the rebate.
Nearly all the time, the employer and the employee share the cost of health care premiums, and the law requires that the rebate be split proportionately. It gives employers the option to pay workers their share in a lump sum, reduced premiums in the future or "applying the rebate in a manner that benefits its employees."
We have not found any government agency that tracks how firms share the rebate. We did find this guidance to employers from the U.S. Labor Department. It said the Employee Retirement Income Security Act (ERISA) applies and as far as what companies do with the rebate, employers "must act prudently, solely in the interest of the plan participants and beneficiaries."
One final point. Individuals saw a rebate check more often than you would expect. These customers represent just 15 percent of the private insurance market. But they made up 32 percent of the households that got rebates.
Obama said "millions of Americans opened letters from their insurance companies" and got rebates from companies that failed to spend at least 80 percent of premiums on care. Then he talked about 13 million rebates going out last year and about 8.5 million this year. Those numbers are generally accurate.
But while Obama gets the numbers right, he left a misleading impression about the rebates going directly to so many people. In fact, more than half of the rebates went to the employers that run health plans for their workers. Federal law says the employers have to use the money on health care, but they can also use it shore up the health plans. So not all of these policy holders are getting $100 directly. For these reasons, we rate Obama's statement Half True.
White House, Remarks by the President on the Affordable Care Act, July 18, 2013
Associated Press, Fact Check: Obama spins health insurance rebates, July 19, 2013
Centers for Medicare and Medicaid Services, Health care law saves consumers over $1 billion, June 21, 2012
Kaiser Family Foundation, Explaining Health Care Reform: Medical Loss Ratio, February 29, 2012
U.S. Government Accountability Office, Private Health Insurance: Early Indicators Show That Most Insurers Would Have Met or Exceeded New Medical Loss Ratio Standards, October 2011
Centers for Medicare & Medicaid Services, 2012 MLR Rebates by State and Market, June 2013
Centers for Medicare and Medicaid Services, The 80/20 Rule: Providing Value and Rebates to Millions of Consumers, June 2012
U.S. Labor Department, Guidance on Rebates for Group Health Plans Paid Pursuant to the Medical Loss Ratio Requirements of the Public Health Service Act, December 2, 2011
Washington Post - The Fact Checker, President Obama’s claim that Americans saved $3.4 billion in health-care premiums, July 19, 2013
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