If you are one of the “lucky” employers who sponsors an insured group health plan and recently received a Medical Loss Ratio (MLR) rebate from your insurer, you must determine how much (if any) of the MLR rebate is “plan assets” and either pay that amount to eligible plan participants or reduce future premium amounts as soon as practicable and within three months of the date the MLR rebate check is received from the insurer.
It’s important to document how you allocated the MLR rebate and to whom, because this is one of the items on the Department of Labor’s audit checklist of ERISA group health plans. If you were lucky enough to receive an MLR rebate, your luck will likely continue when it comes to DOL audits.
Leavitt has a rebate calculator spreadsheet and a Sample Employer Rebate Documentation form, as well as sample language if you want to notify your employees about the rebate. Please contact your Leavitt advisor if you would like copies of these documents.
For the past few years, Leavitt has posted a detailed article about the MLR provisions. For the 2015 article, click here. This year we are only posting a summary, since the details remain the same as in prior years.
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.
Background on the MLR Rebate Provisions of the Affordable Care Act
The Medical Loss Ratio (MLR) Rebate provisions of the Affordable Care Act (ACA) require health insurers to pay rebates to policyholders if the insurers fail to meet specified MLRs. The MLR is the percentage of total premium revenue (not including taxes and fees) that is spent on medical claims and health care quality improvement activities (as opposed to administrative and marketing expenses and profits). The requirements are as follows:
- In the large group market the MLR must be at least 85%.
- In the small group and individual markets the MLR must be at least 80%.
The ACA defines a small employer for this provision as one who employed an average of 1-100 employees on business days during the prior calendar year and had at least two employees on the first day of the plan year, but states have the option to define a small employer as one who employs up to 50 employees. Employees include full-time, part-time and seasonal employees.
Calculation of Medical Loss Ratios
Each health insurer calculates its MLR and rebates based on aggregate data it files in each State, for each market segment (e.g., large group, small group, individual). Beginning in 2015 (for the 2014 “reporting” year) insurers must file MLR reports with HHS by July 31, reporting data for the prior calendar year. The rebate amount is calculated based on the average MLR (ratio) over the prior three years.
Note: The rebates are not calculated separately for each employer group health plan’s experience. Even if your particular plan’s MLR was below the applicable required standard, you will not receive a rebate unless the particular insurance product you purchased in your market size in your state qualifies for an MLR rebate.
Four Decisions Plan Sponsors Must Make
Plan sponsors that receive MLR rebate checks from their insurers must make four determinations:
- How much of the rebate must be paid to plan participants, and how much may the employer keep?
- Must or should the rebate be allocated to both prior year and current year participants?
- How may the rebate be used?
- When must the rebate be paid?
These Rules Apply even for Small Rebate Amounts: No “de minimis” Exception
There is no minimum amount (de minimis exception) below which plan sponsors and employers do not have to comply with the MLR rebate rules. HHS rules apply a de minimis rule to determine whether or not an insurer/carrier must pay MLR rebates, but these same rules do not apply to plan sponsors/employers who receive a MLR rebate.
If the insurer pays a rebate to the policyholder (employer), and all or part of the rebate is “plan assets,” the employer is required to return the appropriate amount to participants, no matter how small the amount is, even if the amount the employer must pay to each participant is less than the $5 amount noted below for insurers.
The HHS rules that apply to insurers/carriers are:
- Group market: Insurer is not required to pay the rebate if the rebate amount is less than $20 for the combined policyholder and subscriber portion of the rebate.
- Individual market or if insurer pays rebate directly to each subscriber in a group: Insurer is not required to pay the rebate if the rebate is less than $5 per subscriber.