It’s MLR Rebate time again! Insurers are required to remit Medical Loss Ratio (MLR) payments to policyholders no later than September 30th. The MLR provisions apply only to insured health plans; they do not apply to self-funded health plans or to insurance policies for “excepted” benefits such as stand-alone dental or vision coverage.
In a nutshell, the MLR Rebate provisions of the Affordable Care Act (ACA) require health insurers to pay rebates to policyholders if the insurer fails to spend at least 85% of total premium revenue (for a large group policy) on medical claims and health care quality improvement activities (as opposed to administrative and marketing expenses and profits). For a small group policy, the threshold is 80% rather than 85%. The denominator of total premium revenue does not include taxes and fees.
Employers should take note that there are specific rules about what can be done with those monies as the percentage of the premiums contributed by employees/plan participants are plan assets that must be used for the sole benefits of those participants. For additional details on those rules, see below.
Frequently Asked Questions
How much of the rebate must be paid to plan participants, and how much may the employer keep?
If the plan sponsor is the group policyholder and the plan document and SPD do not specify otherwise about rebates, the portion of the rebate that will be considered “plan assets” is the same percent of the total premium that was paid by participants. For example, if participants paid 40% of total premiums last year and the employer paid 60% of total premiums, then 40% of the MLR rebate will be “plan assets” and should be paid to or for the benefit of plan participants.
Must or should the rebate be allocated to both prior year and current year participants?
In most cases an employer probably can decide to allocate the rebate among only current employee participants, rather than having to track down former employees and send them checks. DOL guidance provides that ERISA’s general standards of fiduciary conduct apply but also provides that the plan fiduciary may allocate the MLR rebate only to current participants—and not to former participants—if the fiduciary finds that the cost of distributing amounts to former participants approximates the amount of the proceeds. (Technical Rel. 2011-04) https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/11-04
- If you feel each participant will receive a rebate amount that is higher than the cost of tracking down former participants and sending them money, then you should include former participants in the group of recipients.
- If the employer paid 100% of the cost of employee-only coverage but participants paid 100% of the cost of dependent coverage, you probably should allocate the portion of the rebate that is attributable to participant contributions among participants with dependent coverage, not also return it to those with employee-only coverage (since they paid zero toward the premiums).
How will the rebate be paid or used?
Rebates for plan participants can either be paid to or for the benefit of participants or can be used to pay for benefit enhancements adopted by the plan sponsor. Employers usually either: a) pay the rebate to current employees by including the amount in their paychecks and withholding taxes, or b) reduce employees’ November premiums by the rebate amounts.
When must the rebate be paid?
The portion of the rebate that is “plan assets” must be paid out within 90 days of the date the employer receives the check from the insurer, or the employer must establish a trust to hold plan assets.
Conclusions
Employers sponsoring an insured health plan that receives such a rebate should decide how much of the rebate is plan assets and must be used or remitted to plan participants in the year in which the rebate is for (for example for rebates received this year, participants in the 2017-2018 plan year are entitled to their portion of the rebate) within 90 days.
Additional Resources
For several years the Leavitt Group has posted detailed articles about these MLR rules. While the last few years reflect only summaries you may find a detailed 2015 article here.