News Room

State Wants to Delay Health Insurance Rebates - Waiver would allow companies, not individuals, to keep the money – by Ledyard King, Democrat Washington Bureau – October 29, 2011

WASHINGTON — Florida is asking the federal government to delay a requirement that health insurers use at least 80 cents of every dollar in premium money to pay for medical treatment, a move that could deny customers more than $170 million in rebates.

If federal officials give the state a waiver granting a three-year delay, insurance companies will get to keep the money they would otherwise have to pay in rebates and could spend it on marketing, salaries, commissions to brokers and other administrative costs.

The Health and Human Services Department could rule on the waiver request as early as next month.

Consumer groups oppose the request, which applies only to policies covering people who buy insurance on their own.

There are conflicting estimates on how many Floridians are covered through the individual market and therefore could be eligible for rebates.

In its waiver application, the state said about 842,252 people are covered through the individual market. But the number could be more than 2 million, based on census data.

The insurance industry said some insurers will leave Florida if the waiver isn’t granted. Independent insurance agents already are reporting layoffs as insurers cut commissions to meet the new requirement.

Florida is one of 17 states seeking a waiver to the insurance spending requirement, part of the sweeping health care reform bill President Barack Obama signed into law in March last year.

Insurers that don’t spend at least 80 percent of the premiums they collect on medical care, starting this year, must pay policy holders the difference as rebates.

Those rebates would go out next year, based on 2011 spending.

The federal law trumps Florida law, which allows insurers to spend as little as 65 percent on medical treatment, depending on the plan.

To avoid paying rebates, insurers across the country are reducing commissions paid to brokers and lowering premiums, according to the Government Accountability Office, the investigative arm of Congress.

Florida Insurance Commissioner Kevin McCarty is asking for the three-year delay to give insurers and brokers time to adjust to what he called “monumental shifts in standard industry practices.”

Without such flexibility, he said, insurers — especially new entrants facing high start-up costs — would leave Florida, limiting choices for state residents.

With more time, “producers and issuers will be able to adjust to the new market realities over a reasonable period of time and prevent an abrupt loss of services for Florida customers,” reads the petition signed by McCarty. “(Florida) firmly believes that change is best accommodated as a process rather than an event.”

Consumer groups, including Florida PIRG say the state has had time to adjust and that its robust insurance market will continue to provide ample customer choice without the need for a waiver.

They note that the state’s largest insurer, Blue Cross & Blue Shield of Florida, which serves 40 percent of the individual market, already meets the 80 percent requirement in the federal health care law.

“As a large state with a broad and competitive market in relation to most other states, (Florida’s) application for a blanket waiver is a political, not an economic, act,” Judy Dugan, research director at Washington-based Consumer Watchdog, wrote in an Oct. 24 letter to Health and Human Services Secretary Kathleen Sebelius.

Consumer Watchdog also notes that Republican Gov. Rick Scott opposes the health care law and has declined to accept or apply for millions in federal grant money associated with the law. One in five Floridians is uninsured.

If the waiver isn’t granted, 12 of the 20 insurance companies operating in Florida would have to rebate customers a total $76.1 million next year, $50.6 million in 2013 and $47.2 million in 2014, according to state records.

The 12 are: American Republic Insurance, AvMed, Connecticut General Life Insurance, Coventry Health Plan of Florida, Freedom Life Insurance, Golden Rule Insurance, Humana Health Insurance, John Alden Life Insurance, Mega Life & Health Insurance, Mid-West National Life Insurance, Preferred Medical Plan, and Time Insurance.

Golden Rule is the second largest provider in the individual market, serving more than 118,000 Floridians, according to state records. It spends 68 percent of its premium money on health care, state records show. Without a waiver, the company projects it would have to pay $32.8 million in rebates next year.

Insurance brokers have voiced concerns as well, saying their commissions would be among the first expenses insurers will eliminate to reach the 80 percent threshold. Losing those commissions would eat into already slim profit margins and force them to lay off workers, they said.

Many of the roughly 4,000 agents with the National Association of Insurance and Financial Advisors-Florida said in a recent survey they’ve already been told by insurers that their commissions will decrease at least 30 percent, said Tim Meenan, a lobbyist for the association.

“Your biggest expense at that agency is salaries,” Meenan said. “And if you’re going from $1 million (in revenues) to $700,000, you’ve got to look around the room and go, ‘I still have to pay rent and lights and certain expenses. but I’m going to have to lay off some employees.’ It’s not just a profits issue, it’s a jobs issue — in Florida and nationally.”

— Contact Ledyard King at lking@gannett.com