Insurance Commissioner Ricardo Lara today issued a Notice to California health insurance and specialized health insurance companies, urging that they issue refunds back to their policy and certificate holders because consumers largely refrained from seeking medical care in response to the COVID-19 pandemic and the resulting “stay-at-home” orders by state and local public health officers. Savings from the months’ long deferral of medical care and treatment for ailments unrelated to COVID-19 has resulted in record net profits this year for health insurance companies and specialized health insurance companies, such as dental insurance plans.
“Health insurance companies are seeing record net profits this year due to lower policy benefit use, so I am urging they return some of those profits back to consumers, families, and businesses that they insure, many of whom are struggling financially due to COVID-19,” said Commissioner Lara. “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. 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.” – Commissioner Lara
The Notice asks health insurance companies to provide premium refunds on either the November 2020 or December 2020 consumer statements in the form of a refund, credit, premium reduction, or other adjustment. Specialized health insurance policies, such as dental insurance, that have a maximum annual benefit may also comply with this request by increasing the 2021 annual benefit by a percentage equal to the period during which covered services were not available during 2020. For example, as dental practices were essentially closed for a quarter of calendar year 2020, the 2021 maximum benefit would be increased by at least 25 percent.
The Department has already worked with two health insurance companies who proactively sought to provide premium credits to their policy and certificate holders in the individual and group markets, returning between 5 percent and 15 percent of policyholders’ July 2020 premium. Two other health insurance companies are currently working with the Department in considering such credits as well.
This Notice is the latest in a long list of consumer protection actions that Commissioner Lara has taken since the beginning of the COVID-19 pandemic, including previous orders similarly directing insurance companies to provide premium relief for automobile insurance and commercial liability policies to reflect the lower risk that policyholders are experiencing in the current COVID-19 landscape, which has thus far resulted in more than $1.2 billion in premium relief and reduced future premiums for California consumers and businesses.
Editor Note: The California Department of Insurance only regulates a part of the health insurance market for individuals and families. Most of the HMO plans and Covered California plans are regulated by the Department of Health Care Management. In addition, most health insurance companies must comply with the Medical Loss Ratio (MLR) rules of the Affordable Care Act. The MLR states that 80 percent of premium dollars must be spent on health care claims and quality improvements. Any excess funds spent on other activities, such as administration, must be repaid back to the members.
Premium Refund Notice
During the COVID-19 pandemic, specifically during the past seven months, beginning in March 2020 as the first state and local public health “stay at home” orders took effect, health insurance policyholders and certificate holders have refrained, and continue to refrain, from seeking care for ailments unrelated to COVID-19. In addition, some health facilities deferred certain types of procedures and non-emergency care in order to maximize capacity for the treatment of patients diagnosed with COVID-19 and to conserve personal protective equipment. As a result, health insurance and specialized health insurance companies experienced, and continue to experience, substantial net profits during calendar year 2020 due to the cost savings associated with the underutilization of health services by their policyholders.
Therefore, I request that all health insurance and specialized health insurance companies provide their policyholders with a partial premium refund no later than December 31, 2020. These refunds should be reflected in the November or December 2020 premium statements sent to policyholder or certificate holders, if refunds have not already been issued. This request applies to all health insurance as defined in Insurance Code section 106(b) and specialized health insurance as defined in section 106(c), and will provide much-needed financial relief to individual consumers, families, and small businesses during the COVID-19 pandemic.
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. Insurance companies may comply with this premium refund request by providing a premium credit, reduction, return of premium, or other appropriate premium adjustment. Policies of specialized health insurance, such as dental insurance, that have a maximum annual benefit may instead accomplish the requested refund by increasing the covered person’s 2021 maximum annual benefit by a percentage reflecting the period during which covered services were not available during 2020. For example, as dental practices were essentially closed for a calendar quarter of 2020, each insured’s 2021 maximum benefit would be increased by at least 25 percent.
Every insurance company subject to this Notice should report to the California Department of Insurance, if they have not already done so, all actions taken and/or contemplated future actions in response to or consistent with this Notice within 45 days of the date of this Notice.