DAVID GREENE, HOST:
Starting this year, health insurance plans may have to cough up millions of dollars in rebates to customers. The provision is part of the national healthcare law known as the Affordable Care Act. the provision says if insurance companies are spending too much on administrative costs and not enough on medical care, they have to give back some of the money. As Carrie Feibel of member station KUHF explains, insurance officials in many states have asked for permission to push back the requirement for a few years.
CARRIE FEIBEL, BYLINE: Bob Vesey is that guy that politicians keep talking about. He's a small business owner, an entrepreneur and a job creator. Vesey started his company Packtech in 2003. It's a foam fabrication company in Grand Prairie, near Dallas.
BOB VESEY: We do custom packaging for anything that needs to have protection inside of a carton.
FEIBEL: Packtech is small, only three employees. So, like many Texans, Vesey and his wife have to buy their own health insurance. Right now, the couple pays $784 a month to Blue Cross Blue Shield. Vesey says the premium keeps going up every year, sometimes twice a year.
VESEY: Right now, I get these letters and, you know, I just, I cringe every time I get an envelope from BCBS. I say, oh, here's another one. You just don't even want to get that mail. You just don't want to receive it.
FEIBEL: But this year he might be receiving some cash back from his insurance company, thanks to a provision of the Affordable Care Act. It requires insurance companies to spend at least 80 percent of what they take in, on actual medical care, or quality improvement. Everything else - overhead, profit, marketing - is limited to the other 20 percent.
Blake Hutson is with Consumers Union in Austin.
BLAKE HUTSON: That 20 percent, you can go keep spending 20 percent on your administrative overhead, which is things like lobbying or paying CEO salaries. They can still spend money on those things. They just got to give us a baseline. They got to give us 80 percent of our premiums on actual healthcare.
FEIBEL: But insurance companies don't like this. Those companies that now exceed the 20 percent will have to refund the difference to their policyholders, and get those checks in the mail by August of this year. In Texas, for example, 23 companies will have to refund an estimated $160 million dollars to people who buy their own insurance policies.
Bob Vesey says he'd welcome that.
VESEY: That'd be wonderful. I mean at least you'd know.
FEIBEL: Without the rebates, Vesey says he and his wife will only get relief after they get on Medicare.
VESEY: You know we're saying, God, got to get to 65. Got to get to 65. Can't handle this anymore, you know?
FEIBEL: But the Texas Department of Insurance has asked the federal government to delay the new 80 percent rule for three years. The state argued this is necessary to prevent smaller insurance companies from pulling out of Texas.
Robert Zirkelbach is with America's Health Insurance Plans, a national lobbying group. He says the new cap misses the point.
ROBERT ZIRKELBACH: All the data show that rising healthcare costs are being driven by rising prices for physician services, hospital costs, prescription drugs and new medical technologies. And this new requirement does nothing to address the soaring costs of medical care.
FEIBEL: In Texas, a third of the insurance companies don't even come close to limiting profit and overhead to 20 percent. Consumer advocates say those companies offer poor value, and if they do leave the market it'll be good riddance.
But Zirkelbach says that's unfair, especially for smaller companies. Those insurers often have higher overhead costs because they need to rely on brokers or advertising to find each individual customer.
ZIRKELBACH: What we're talking about here is an arbitrary cap on health plan administrative costs. And it's often those smaller insurance companies that would be hardest hit by this.
FEIBEL: Seventeen states asked the federal government for relief from the 80 percent cap. They're allowing six states to phase it in gradually. But eight have been turned down. A decision on the Texas request is expected any day now.
For NPR News, I'm Carrie Feibel in Houston.
GREENE: And Carrie's report is part of a project of NPR, KUHF and Kaiser Health News.
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