Insurers on the Hook for $1Billion in Returns

Insurers on the Hook for $1Billion in Returns

Changes in federal health regulations will force insurers to return up to $1 billion to both businesses and end consumers this year alone, according to a report from the non-partisan Kaiser Family Foundation. Goldman Sachs Group, Inc. estimates an even higher rebate total, at $1.2 billion. Kaiser estimates that approximately 31% of individual policy holders will be getting rebates, averaging $127 per person over about 3.4 million individuals. Approximately 28% of small businesses will also be getting refunds, receiving about $76 per employee.

The new federal health regulations include a provision that requires firms to comply with a certain medical-loss ratio, which is simply the share of premiums that pay for medical expenses. Under this arrangement, 80% of premium revenue from both individuals and small business, and 85% of premium revenue from large corporate policies must be spent on claims and health quality improvement. When an insurer doesn’t spend enough on health costs, the difference is refunded to the policy holders.

Goldman Sachs Group, Inc. (NYSE:GS)  indentified the firms that will be providing major refunds in their analysis. This includes UnitedHealth Group Inc. (NYSE:UNH) at $307 million, Aetna Inc. (NYSE:AET) at $177 million and WellPoint, Inc. (NYSE:WLP) at $94 million. These amounts would have already been included in earnings results and projections, though as with all estimates, it is possible that the refunds are higher or lower than original projections. However, this is likely to have a minimal impact on earnings as a higher refund simply would be reflective of higher than expected profits from the policies, with the impact of the two changes mitigating each other. It is likely that insurers would have reduced premiums upon the change in regulation in order to avoid higher refunds.

The Wall Street Journal’s Anna Wilde Mathews reported that the estimates do not include all of the rebates that will be paid in California; however, the company’s again would have already provisioned these refunds in their results and estimates.


Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Congrats! Are you a smart person?

We have an exclusive targeted & limited time offer for being a sophisticated and loyal reader.

ValueWalkPremium is a website and newsletter on the latest industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today and get our exclusive content for 40% off. This is our second biggest discount ever!!

Use coupon code VIP20 or click on the button below

Limited time offer only ENDS 4/30/2020 or after the next 40 subscribers take advantage whichever comes first – please do not share this discount with others