About 240,000 Californians with job-based health coverage may have been surprised by a recent letter from Blue Shield of California saying the company owes them money, not the other way around.
Those people work for 30,000 small employers around the state, like a pet grooming business in Bakersfield, and a heating and cooling company in the Northern California town of Eureka. The refund checks sent by the insurer weren't sent to the individuals, but to their employers, who had to calculate how to distribute the money to workers based on their share of 2015 premium payments. For some bosses, it was no easy task.
"Almost all of [my clients] came to me and said 'what do I do with this?'" said Adam Rochon with Sequoia Solutions in Exeter, Calif., which helps small businesses manage employee benefits.
Some employers could keep the refund, if they paid all of their employees' premiums. For most of Rochon's clients, money was returned to employees in their paychecks.
Employees may have only received enough money to buy lunch, but the total amount refunded was not small change.
Blue Shield of California, already under scrutiny from the Department of Managed Health Care, is on the hook for almost $25 million this year to enrollees and the employers that cover them and their dependents. A rule in the Affordable Care Act requires insurance companies to pay customers back when the insurers don't spend enough money on medical care.
"The fact that it had to issue rebates again this year shows that … consumers are being overly charged," said Dena Mendelsohn, staff attorney for Consumers Union, the non-profit advocacy arm of Consumer Reports.
Blue Shield is not the only health insurer to issue rebates this year, but its rebates comprise the lion's share of the money California insurers owed to consumers from premiums they paid in 2015. It's the second year in a row that Blue Shield has been required to return tens of millions of dollars to its California customers.
For the 2014 plan year, Blue Shield of California paid out the largest refund amount of any insurer in the nation to people in the individual and small group markets, returning a total of more than $85 million to California customers for overpaid premiums.
A pending lawsuit against the insurer alleges that it shortchanged consumers on the rebates it paid consumers that year. The Department of Managed Health Care, which regulates the insurance company, says it's still looking into a complaint filed on the matter.
Blue Shield "might just be trying to maximize how much money they can bring in," Mendelsohn said, adding that the company could also be having trouble predicting how many premium dollars it will need to cover medical claims.
Blue Shield must refund money to consumers because it failed to meet a provision of the federal health law, known as the "medical loss ratio," that requires insurers covering small businesses and individuals to spend at least 80 percent of premiums on medical care or other initiatives that improve the quality of care. That means insurance companies cannot use more than 20 percent of premiums for administration, marketing or profits.
Blue Shield spent 77 percent of the premiums it collected on medical expenses, said Mia Campitelli, a company spokeswoman, in a written statement. She said the insurer missed the threshold for medical spending last year because many of its customers moved to new plans in 2015 that complied for the first time with more comprehensive coverage rules under the Affordable Care Act.
"Many groups opted to extend their old plans for an additional year and are now moving to small business [Obamacare] plans for the first time," Campitelli said. "The migration to these new plans … is changing risk dynamics."
Insurers were required to send the rebate checks to enrollees' workplaces by Sept. 30, according to the Department of Managed Health Care. The average amount per member in the Blue Shield policies subject to the refunds was about $58, but the amount actually reimbursed depends on the employee's health benefit arrangement at their workplace.
Blue Shield was not alone in having to pay customers back this year. Six other health insurance companies operating in California missed the mark on medical care spending, but none owed more than a few hundred thousand dollars.
UnitedHealthcare owed policyholders more than $318,000, and U.S. Behavioral Health Plan, also known as OptumHealth, owed consumers $326,000.
Under the federal rule, employers don't have to send back rebates if the group amount is $20 or less. So it's possible some California insurers did not have to send out refunds.
All of the rebates went only to consumers with job-based coverage, who work for both large and small companies. No one who purchased an individual health plan through Covered California or on the open market will get a refund.
Mendelsohn of Consumers Union says one reason why businesses and their employees are getting refunds, as opposed to individual policyholders, could be because Covered California negotiations with insurers on premium pricing is preventing the companies from having to return money later.
Small business groups say the fact that insurance companies are forced to issue refunds reflects well on the Affordable Care Act.
"This shows that [Obamacare] is working to reduce costs," said Mark Herbert, California director of the Small Business Majority. He said the federal health law is ensuring that insurance companies don't make excessive profits.
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"We know consumers are getting the best bang for the buck," Herbert said.
But Mendelsohn, of Consumers Union, said the minimum spending on medical care required by the law, while a backstop to make sure consumers aren't taken advantage of, is a pretty low bar.
"Some plans with already robust profits or surpluses should aim higher," she said.
This story was produced by Kaiser Health News, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.