The Medical Loss Ratio rebates are meaningless. They do not reduce your premium payment, nor can you deduct it as a medical expense. These mandated refunds will drive smaller insurance companies out of business. This is another bureaucratic regulation added by Obamacare.
To reduce this administrative hassle, individuals and employers should manage their own medical care by using MediBid to receive affordable medical care. Cash-paying patients can save money on procedures from physicians who will provide timely medical care without the constraints of insurance programs. Employers can reduce their costs by having group health plans using HSAs, which put spending power in employees’ control.
METZGER: Obamacare refund pains
Little hope for handling the loose change
By Joseph R. Metzger August 10, 2012
The Leadership Institute recently received a refund check from its insurance carrier for $523.15. I would have been much happier receiving nothing.
Obamacare requires insurance companies to spend at least 80 percent of the premiums they collect on medical, hospital and doctor bills. Our carrier lost just 77.9 percent, so it was compelled to refund the 2.1 percent difference to us.
That’s fine and dandy, except we can’t just deposit the check and record it as a reduction in our medical insurance expense.
Instead, we have a Hobson’s choice of reducing premiums for our employees next year or providing rebates to 2011 employees. On the surface, neither option seems unpalatable, but as the person who handles the administrative burden, I see quite the opposite is true.
With the first option, we would have to guess what our future medical premiums are going to be in 2013, which is essentially impossible because we have no idea in advance about employee turnover. Using best guesses, we would reduce each employee’s insurance payments by about 35 cents per pay period.
However, we would have to track all of the 35-cent premium reductions throughout the year to ensure we credited our employees with the full $523.15 premium reduction. If we came up short on Dec. 31, finding we had reduced aggregate premiums by, say, $521, I have no doubt there would be a penalty, or tax, for failing to reach this target. Administratively, tinkering with and tracking premium reductions during the year is a major consumer of time and is therefore a major expense, while the 35-cent benefit to each employee, which, by the way, is considered taxable income, is negligible.
In the second option, we could just send rebates all at once. Unfortunately, to do so correctly would require tabulating premium payments for everyone who had insurance with us at any time in 2011, prorating the $523.15 and mailing about 50 or 60 checks, some as low as $1 and most averaging about $8.
Worse still, because premiums are collected from employees on a pre-tax basis, we would be required to report those tiny checks as taxable income, withhold taxes and issue W-2s, which, in the case of former employees, would increase our payroll fees in addition to the administrative time involved.
It would be cheaper for us just to give the check back to the insurance carrier and hand out small bonuses to our employees, but the insurance carrier won’t take the money back because Obamacare forbids it.
Alternatively, our employees probably would be happier and would receive more direct benefit if we invested the $523.15 in an upgraded coffee maker that produced something other than a thick sludge that tastes like battery acid. Sadly, Obamacare forbids that, too. Instead, I’ll have to deal with this triumph of an infinitely elastic taxing power in one of the two allowable ways, and the Leadership Institute will be forced to incur administrative expenses far in excess of any benefit provided to our employees.
For future years, I have reason to be hopeful and have a solid plan for avoiding the administrative headache of premium refunds: Encourage our employees to use their insurance more heavily.
For example, once an employee pays the co-payment to visit a doctor, have that doctor also throw in a few X-rays or blood tests. Or, because vaccines are covered with no co-payments, perhaps we could have the staff vaccinated for Japanese encephalitis and yellow fever.
It doesn’t matter what we spend money on — we just have to make sure to spend enough to avoid another rebate next year. Perhaps unaccountable and unnecessary medical spending, entered into for the sole purpose of minimizing administrative costs imposed by Obamacare, could have some impact on long-term premiums, but as long as Obamacare massively distorts incentives anyway, what’s a little more damage?
Joseph R. Metzger is vice president of finance for the Leadership Institute.