Please Give Customers Refunds: California to Health Insurers


Ricardo Lara (Credit: California Department of Insurance)

California’s top insurance regulator says health insurers that have huge operating profits due to COVID-19 should provide partial premium funds.

Ricardo Lara, the state’s insurance commissioner, has issued a notice asking issuers of major medical insurance and of specialty health insurance product to return unusual, COVID-19-related profits to the customers, through cash payments, premium credits or premium reductions.

The Affordable Care Act now prohibits major medical insurance issuers from imposing annual caps on coverage for essential health benefits, but issuers of other types of health insurance products, such as dental insurance, could provide the refunds by increase an enrollee’s 2021 annual benefits maximum, according to the notice.

Resources

  • A copy of the California notice is available here.
  • An article about how Centene’s chief executive officer sees the COVID-19 pandemic is available here.

Lara issued the notice earlier this week. He addressed it to all health insurers and “specialized health insurance companies” in California. He also addressed the notice to insurance agents, adjusters and producers, and to all other licensees and interested parties.

As the regulator of the largest insurance market in the nation, it is my duty to make sure consumers are protected and insurance companies remain solvent,” Lara said in a comment included in a notice announcement. “I am doing all within my authority to strike that delicate balance but, right now, the scales are not balanced for consumers and businesses with health insurance. With this notice, I am expecting health insurance companies to help contribute back to the recovery of services by businesses and get money back into the hands of consumers when they need it the most.”

Two health insurers have already provided refunds, and two others are working on refund efforts now, Lara said.

The Background

Lara is in a somewhat unusual position, because California, unlike many other states, splits regulation of health coverage between the California Department of Insurance and the California Department of Managed Health Care.

Lara is an elected official in his own right, not just a cabinet appointee. But his department oversees regulation of only about 5% of the enrollees in commercial and public managed plans, but bout 86% of the entities that help employers run self-insured plans, according to the California Health Care Foundation.

Large, publicly traded health insurers reported in July and August, when they were releasing earnings for the second quarter, that social distancing rules and disruption caused by the COVID-19 pandemic had led to a sharp decrease in consumers’ use of preventive care and elective care.

Some health insurance company executives, including Michael Neidorff, the chief executive officer of Centene Corp., said he they were worried that claims could rise sharply later in 2020, or in 2021, because of an increase in COVID-19 care claims, a pent-up demand for care, and, possibly, extra care needed, due to the health effects of the lack of preventive care and routine care that patients received in early 2020.

Notice Details

In the California Department of Insurance notice, Lara does not discuss the possibility that health insurers’ ratios of claims to premiums could spike the second half of 2020, or in 2021.

But Lara also indicates, by using the term “request,” that he is asking insurers to provide partial refunds for individual policyholders and group plan sponsors, not requiring them to do so.

Lara says that, given that most dental practices were closed for about three months, dental insurers could consider providing refunds by increasing each enrollee’s annual benefits maximum by at least 25% in 2021.

Lara has not provided a refund formula for other types of insurers.

“Each insurance company subject to this notice may exercise reasonable flexibility in determining how best to quickly and fairly accomplish and implement the refund of partial premium back to its policyholders and certificate holders,” Lara says in the notice.

Lara is asking insurers to make any refunds for 2020 by Dec. 31, 2020, and to report any refund actions they have taken or will take to the department.

— Read Health Insurance Rates Could Be Weirdly Stable: Actuarieson ThinkAdvisor.

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