Over 8 Million People Are in Line for a Health Insurance Rebate This Month. Are You One of Them? – The Motley Fool

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by Maurie Backman | Published on Sept. 10, 2022
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Health insurance companies are required to follow certain rules. One such rule is sticking to a medical loss ratio that requires them to spend at least 80% of the money they collect in premiums on healthcare costs and expenses related to patient health.
Insurers that don't meet that threshold can't just keep the extra money. Instead, they're forced to pay it back to policyholders in rebate form.
That's what's happening this year. Health insurance companies are expected to pay out $1 billion in rebates by the end of September, according to a recent estimate from the Kaiser Family Foundation.
The average person on a marketplace plan can expect a $141 rebate. Meanwhile, participants in large group plans can expect $78 on average, and participants in small group plans can expect $155.
If you're getting a rebate from your health insurance company this month, you may be inclined to splurge that money. But here are some options to consider instead.
Do you have enough money in your savings account to cover at least three full months of living expenses? If not, then any extra money that comes your way should go directly into the bank. You never know when you might lose your job or get hit with an unplanned bill. If your emergency fund needs work, it pays to stick your rebate check in the bank and get closer to your savings goal.
If you owe $3,000 on your credit cards and get a $141 check from your health insurer, you might assume that using that money to pay off your debt won't make a big difference. But actually, it will. Any amount you're able to pay toward your debt could spare you some additional interest. And so it's worth using your rebate for that purpose, even if you're looking at a daunting balance to pay off.
If you're enrolled in a health insurance plan with a high annual deductible, then you may be eligible to participate in a health savings account, or HSA. An HSA lets you sock money away in a tax-advantaged fashion for near-term and long-term medical expenses. Not only will you get a tax break on the money you put in, but if you don't need it right away, you can invest it so it grows into a larger sum. That's money you can tap in the future should you encounter a healthcare issue that costs you a lot of money.
The fact that health insurance companies are held accountable for not overcharging participants is a good thing. If your emergency fund is complete, you don't owe a dime on your credit cards, and you already have money set aside for healthcare costs, then you may be inclined to use your rebate to treat yourself to something fun. Otherwise, think about the ways you can use that money to better your financial situation on a whole.

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Maurie Backman writes about current events affecting small businesses for The Ascent and The Motley Fool.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
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