Employee Benefits Compliance, Medical Loss Ratio & Rebates

Medical Loss Ratio (MLR) & Rebates

Background on the MLR Rebate Provisions of the Affordable Care Act

The Medical Loss Ratio (MLR) provisions of the Patient Protection and Affordable Care Act (PPACA) require health insurers to pay rebates to policyholders if the insurers fail to meet specified MLRs. The MLR provisions do not apply to self-funded health plans or to insurance policies for “excepted” benefits such as stand-alone dental or vision coverage. 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 MLR requirements are as follows:

  • In the large group market insurers must spend at least 85% of premium revenue on medical claims and quality improvement activities. PPACA defines a large employer as one who employed an average of more than100 employees on business days during the prior year and had at least two employees on the first day of the plan year, but states  have the option until 2016 to define a small employer as one who employs up to 50 employees.
  • In the small group and individual markets the MLR is 80%.

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).  Insurers must file MLR reports with HHS by June 1, reporting data for the prior calendar year.  Rebates issued before 2014 are calculated based on data reported for the prior year.  Beginning in 2014, the rebate amount is calculated based on the average MLR (ratio) over the prior three years.

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 aggregate MLR for the insurance product you purchased in your market size in your state was below the required MLR.

Insurers who failed to meet the MLR standards for 2012 must pay rebates to policyholders by August 1, 2013.

This also was the timeframe for 2011-2012; however, beginning with the 2013-2014 MLR cycle (next year), the date by which insurers must report data will be July 31 (rather than June 1), and the date by which insurers must pay the rebates to policyholders will be September 30 (rather than August 1).  The reason the dates were moved back two months is because HHS revised the MLR calculation to include premium stabilization amounts, so the reporting and rebate dates need to be after the premium stabilization payment and receipt amounts are calculated.

Issuers Owing Rebates for 2012

A list of health insurance carriers (issuers) that owe MLR rebates for 2012 is posted on the CCIIO website at:

The list is broken down by state and shows each carrier in each state and the total rebate amount each one owes, in each market segment in which a rebate is owed.

Links to Selected Carriers Websites with MLR Information for 2012 (California)

Anthem:  http://www.anthem.com/ca/MLRrebate/

Blue Shield:  https://www.blueshieldca.com/producer/download/public/MLR-FAQs_July2013_report.pdf

HealthNet:  http://healthnetpulse.com/business/files/2013/05/CA-2012-MLR-results.pdf

Kaiser:  http://kaiserfamilyfoundation.files.wordpress.com/2013/01/8305.pdf

UHC:  http://www.uhc.com/live/uhc_com/Assets/Documents/mlr_rebate_summary.pdf

Government Guidance on MLR Reporting and Rebates

Frequently Asked Questions on the Federal Tax Consequences of MLR Rebates

Links to model notices insurers must provide to policyholders

Medical Loss Ratio (MLR) Interim Final regulations on Rebate Requirements (20 pages):http://federalregister.gov/a/2011-31291

MLR Final regulations (78 pages): https://s3.amazonaws.com/public-inspection.federalregister.gov/2011-31289.pdf

CMS, MLR Fact Sheet: http://cciio.cms.gov/resources/factsheets/mlrfinalrule.html

DOL Technical Release 2011-04 (on MLR rebates) (Guidance for Rebates on Group Health Plans Paid Pursuant to the Medical Loss Ratio Requirements of the Public Health Service Act) : http://www.dol.gov/ebsa/newsroom/tr11-04.html ;

HCR law: section 2718(b) of the PHS Act