WASHINGTON -- Consumers receiving rebates from insurance companies as part of the new health care law will not have to pay taxes on them, according to a rule released today in the Federal Register.
The rebates come when an insurer pays less than 80% of consumers' health insurance premiums on medical care, a proportion called the medical loss ratio. The new rule states that insurers may not include agent and broker fees as medical costs.
Department of Health and Human Services officials say the rule will help keep insurers accountable, as well as ensuring that consumers know how much of their premiums go toward medical care rather than profit and overhead . The new rule states that insurers must send consumers a statement laying out how insurance premiums were spent even if the consumer is not entitled to a rebate.
"If your insurance company doesn't spend enough of your premium dollars on medical care or quality improvement this year, they'll have to give you rebates next year," said Centers for Medicare & Medicaid Services Acting Administrator Marilyn Tavenner in a press statement. "This will bring costs down and give insurance companies the incentive to focus on what matters for patients — high quality health care."
Last week, the national Association of Insurance Commissioners, which determines how the medical loss ratio is calculated, voted on a resolution asking HHS to wait on the rule until the agent issue could be addressed. NAIC members have said they worried about brokers' ability to make a living if insurers cut their rates, and that would hurt consumers who needed help buying insurance.
Kansas Insurance Commissioner Sandy Praeger, chair of NAIC's health insurance and managed care committee, said that will become especially true as more people are required to have insurance. However, she said she voted against the rule because she believed it asked HHS to do something it wasn't allowed to do under federal law.
The claim that agents are losing money may not be entirely supported, Praeger said. A Government Accountability Office report released in July found that "almost all" insurers had lowered or planned to lower their commissions to brokers to maintain a high medical loss ratio.
That's misleading, Praeger said, because insurers have lowered the percentage of an agent's rate — or moved toward a flat fee — as health care costs have risen.
"We all recognize the importance of the agent," she said. "But it's hard to argue that the percentage should go up as health care costs have risen."
Praeger said she thought the law was pretty clear, so if the rule is going to change, it needs to come through Congress. In June, NAIC voted to support a House bill that would have exempted broker fees from the MLR calculation. The bill remains in committee.
HHS officials say that, beginning in 2012, up to 9 million Americans could receive insurance rebates if insurers do not rein in premium rate increases. The rebates must be paid by Aug. 1 every year.