Rebates for Affordable Care Act (ACA) individual market plans surged 155 percent from 2023 to 2024, reaching $1.2 billion—while small group and large group market rebates decreased modestly. This divergence is consistent with a massive influx of zero-claim individual market enrollees in 2023.
As prior Paragon research has documented, both improper and zero-claim enrollment soared over the past few years. Enhanced COVID-era subsidies and lax eligibility verification created strong incentives and opportunities for enrollment without individuals’ knowledge. A Government Accountability Office probe underscored these vulnerabilities, finding that ACA exchanges approved 96 percent of fictitious applications that GAO developed to test exchange integrity.
The 2023 surge of zero-claim enrollees pushed down insurers’ Medical Loss Ratios (MLRs). The MLR measures the share of premium revenue that insurers spend on medical claims and quality improvement. The ACA requires insurers to rebate excess premiums to enrollees if their three-year average MLR falls below 80 percent.
This Paragon PIC reveals a striking pattern: states with larger increases in zero-claim enrollees from 2022 to 2023 had significantly higher MLR rebates per enrollee in 2024. States with 10 to 15 percentage point increases in zero-claim enrollment averaged $208 in rebates per ACA enrollee, six times higher than states with 5 to 10 percentage point increases and nearly 16 times higher than states with 0 to 5 percentage point increases. Changes in zero-claim enrollment explain about 38 percent of the variation in 2024 MLR rebates per ACA enrollee (p < 0.00002), suggesting that the 2023 zero-claim enrollment surge significantly increased 2024 rebate payments.
Policy Implications
MLR rebates on behalf of excessive numbers of zero-claim enrollees waste taxpayer dollars twice. First, through subsidies paid on behalf of the share of zero-claim enrollees who are phantoms. Second, the phantom enrollees drove down MLRs, and the resulting rebates go to current enrollees rather than being returned to the federal government. This is deeply problematic given that federal taxpayers fund roughly 85 percent of the premiums.
Phantom enrollees not only waste taxpayer dollars with excessive subsidies to insurers and rebates to enrollees rather than taxpayers, but they also create additional perverse incentives. When insurers realize they are not spending enough on claims and risk MLR violations, they face pressure to increase medical spending to avoid rebates. Generally, insurers need to spend 80 percent of the premiums they receive or rebate the excess funds. Increasing spending can benefit insurers because higher claims raise the premium base in future years, increasing total profit even if margins remain capped.
Analysis Methodology
State-level 2023 and 2024 individual market MLR rebates are from CMS’s Medical Loss Ratio Data and System Resources. Zero-claim enrollment rates by state are from CMS’s 2019–2024 Enrollees Without Claims by State Market Metal Level dataset. The change in zero-claim enrollment is measured as the percentage point increase in zero-claim enrollees as a share of all exchange enrollees in bronze, silver, and gold plans from 2022 to 2023. Rebates per enrollee are calculated by dividing total state individual market rebates by average monthly effectuated enrollment for 2023. Group averages in the chart reflect total rebates across all states in each group divided by total average monthly effectuated enrollment across all states in that group. The regression uses state-level rebates per enrollee as the outcome and the change in zero-claim enrollment rate as the sole predictor. We excluded ten states due to missing zero-claim enrollment data reported by CMS. All 40 remaining states and the District of Columbia are included in the analysis.
