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Health Insurer Rebates Under Obama’s Overhaul Won’t Be Taxed

Consumers won’t have to pay taxes on rebates they get from health insurance plans that violate spending rules in President Barack Obama’s 2010 overhaul, the U.S. said.

When rebates are required, the insurers would have to send customers an explanation of why they’re getting money back and how the sum is calculated, according to rules issued today by the Department of Health and Human Services. The industry is led by Minnetonka, Minnesota-based UnitedHealth Group Inc., the largest U.S. health insurer by revenue, and Indianapolis-based WellPoint Inc., the biggest by enrollment.

Under the law, health insurers can’t take more than 20 percent of their premium revenue as profit or for salaries and other administrative expenses. At least 80 percent of premiums must be spent on patient care, and plans spending less have to rebate the difference.

Most plans probably won’t have to pay rebates. About 77 percent of insurers that provide coverage for 39 million workers at large companies -- the most-common kind of private health insurance -- would have hit the government’s spending targets last year, Congress’ investigative arm, the Government Accountability Office, said this week.

About 64 percent of insurers in all markets -- individual, small business and large group -- spent enough on care to satisfy the law’s requirements. Seven out of 10 insurance companies that cater to small businesses met the 80 percent minimum spending goal in 2010, while only 43 percent of insurers who sell individual coverage directly to consumers complied.

The government reiterated that it won’t let the insurers deduct the cost of fees they pay to brokers and agents when calculating how much to spend on patient care. Insurance brokers and the National Association of Insurance Commissioners had lobbied to exclude broker fees from the formula, concerned that brokers’ business would suffer otherwise.

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