Skip to content

ACI Blog

Cut Your Losses – It’s Time to Digitize Medical Loss Ratio Rebate Payments

Since the passing of the Affordable Care Act (ACA), the MLR requirement mandates health insurers to limit the portion of premium dollars spent for administration and marketing costs and puts a cap on profits. ACA requires health insurers that cover individuals and small businesses to spend at least 80 percent of their premium income on healthcare claims. If the 80 percent threshold is not met, then a rebate in the form of a refund payment or credit against future premiums must be issued. These rebates must be sent by September 30, 2020 to subscribers who participated in 2019 plans. In 2020, estimated MLR payments of $2.7 billion will nearly double compared to 2019’s record high of $1.4 billion. The portion of MLR earmarked for individuals alone is almost $2 billion.

The process of issuing millions of individual physical checks can be overwhelming. Checks are expensive and consumers may not have the correct physical address on file. The average cost of a check (including printing, stamps and mailing) is a significant administrative cost alone. Finally, what about the checks that are printed and delivered but never deposited? Insurers must bear additional costs to manage the escheatment process involved with uncashed checks.

A better way: What if these payments could be digitized?

Nearly 70 percent of consumers prefer digital options for paying their healthcare premiums, so shouldn’t insurers embrace digital payouts for MLR rebates, too? With the average cost to send a check of about $6.00, the math alone is compelling and it complements the improved customer service experience that health insurers strive to deliver. Not to mention the improvement in administrative and operational efficiencies, including the use of the digital payment method kept on file to send the MLR payment to the policyholder.

For example, in a scenario where an insurer delivers 300,000 physical checks and has an escheatment rate of 20 percent, roughly 60,000 checks are not received, not cashed or may simply be lost in the mail. Using the average check cost of $6.00, the insurer would spend $1.8 million just to send the checks, before factoring in escheatment handling. Digitally delivering these payments via ACH is a more compelling option with a cost, for example, of $0.25 per transaction. This not only lowers the MLR costs by 96 percent to just $75,000, it also eliminates much of the escheatment handling and expense.

With individual MLR payments trending higher, so are the direct and administrative costs associated with outdated methods of distributing them. Plus, with open enrollment just around the corner, digitally delivering these payments will help to delight and retain policyholders at just the right time. Insurers sending MLR payments in 2020 would be wise to find and implement a digital payments solution before next year’s deadline.

For more information about digitizing payments – including MLR – and other ways a modern billing and payment solution can raise member satisfaction, visit

Senior New Business Developer – Insurance

David Young is a passionate payments leader who helps B2C verticals navigate global payments, risk and fraud solutions. A former executive with Visa and Mastercard, he has architected and delivered solutions to the largest banks and merchants in the United States, United Kingdom and Canada.