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A Tangible Financial Benefit of the Affordable Care Act

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The Kaiser Family Foundation just released a great new report that documents how the federal Affordable Care Act of 2010 is already reducing the cost of health care for individuals and businesses.

One requirement of the Affordable Care Act is that insurance companies limit their spending on administration, marketing and profit; the purpose is to ensure insurance companies spend most of the money paid by subscribers on health care and quality improvements. The law limits large group insurance plans to spending no more than 15 percent of subscribers’ money for non-health care purposes. For small group and individual insurance plans, the limit is 20 percent. Insurers who spend more than these limits must refund money to their customers.

The Kaiser Family Foundation estimates that rebates to health insurance customers this year will total $1.3 billion (excluding California because data wasn’t available). Individuals and employers who purchase insurance will receive a check or a reduced rate on future premiums. Roughly 30 percent of people who buy individual or small group insurance will receive a refund, as will 20 percent of people who buy large group insurance. The refund rate for people with individual insurance is highest in Texas, where 92 percent of consumers will receive a refund. The amount refunded will be highest in Alaska ($305 per person) and Maryland ($294 per person). Full state-by-state data on refund rates and amounts for different insurance market sizes is available in the report.

These refunds are only part of the cost savings created by the Affordable Care Act. When deciding on how much to charge consumers for insurance this year, insurance companies knew that if they charged too much relative to how much they spent on patient care they would have to provide rebates at the end of the year. Presumably, consumers are already paying less for health insurance than otherwise would have been the case because many insurers moderated their rate increases.