Two health insurers in Iowa will refund more than $1.75 million in premiums to more than 15,000 policyholders in the state this year, under a provision of the Affordable Care Act that requires insurers to issue rebates if they don’t spend at least a majority of their premium revenue on health care services and quality initiatives.

The bulk of those rebates, more than $1.1 million, will be paid by Coventry Healthcare of Iowa Inc. to large-group policyholders, while the remainder will be paid by Wellmark Health Plan of Iowa Inc. to individual policyholders, according to data from the U.S. Department of Health and Human Services. A total of 14,580 Iowa insurance customers, including individual and group policyholders, will receive the rebates, which average $206 per family.

This is the first time that Wellmark has issued a rebate under the provision, known as the 80/20 rule or medical loss ratio requirement.  Overall, its individual policyholders used fewer medical services than Wellmark projected, Wellmark Chief Financial Officer David Brown said.

 “Wellmark sets rates several months in advance by projecting how much it will cost to administer the plan and to pay our members’ claims,” Brown said in a release. “Sometimes medical costs are higher than expected, and sometimes they are lower.  Fortunately, this group of policyholders utilized fewer medical services than we projected, and we are pleased to provide rebates back to these members."

The rebates are part of more than $332 million in rebates that will be paid out by insurers nationwide, down from more than $1.3 billion paid out last year. Last year, more than 66,000 Iowa residents received rebates totaling more than $1.2 million. Although far fewer Iowans are receiving refunds this year, the dollar total of the rebates in Iowa this year is 41 percent higher than last year. That’s counter to the national trend.

Nationally, rebate totals have declined by nearly 75 percent from last year’s total of over $1.3 billion in repayments. Under the Medical Loss Ratio standard, also known as the 80/20 rule created by the 2010 federal health care overhaul, health insurance companies may spend no more than 20 percent of premiums on administrative costs such as salaries, sales and advertising.  Insurers covering large employer groups are subject to an even higher threshold, having to spend at least 85 cents of each premium dollar on medical claims or improving quality.

This year, insurers’ administrative costs as measured for this rule were 12.1 percent of premiums, down from 13.1 percent a year ago.  

“The 80/20 rule is bringing transparency and competition to the insurance market, ensuring that consumers are continuing to receive value for their premium dollars,” Health and Human Services Secretary Sylvia Burwell said in a release. “Standards like these created under the health care law are providing Iowans with immediate savings and are helping to keep costs down over the long-term.”  

Insurers must issue the rebates by Aug. 1. They have the option to issue refund checks by mail or to policyholders’ payment cards or by direct reductions of future premiums. Employer-sponsored groups have the option to issue refunds or use the money to improve the group’s health coverage.