Health Care Reform, Medical Loss Ratio & Rebates

MLR Rebates 2017

It’s that time of year again: MLR Rebate time! If you received a check from your health insurance company, then you already know that MLR stands for Medical Loss Ratio. If you did not receive a check (September 30th was the deadline), then you probably don’t need to read this article.

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.

Four Decisions Plan Sponsors Must Make

Employers who sponsor insured group health plans and receive MLR rebate checks must make the following four decisions. Following this section is background information about the MLR rebate provisions of the Affordable Care Act (ACA).

  1. How much of the rebate must be paid to plan participants, and how much may the employer keep?
  2. Must or should the rebate be allocated to both prior year and current year participants?
  3. How will the rebate be paid or used?
  4. When must the rebate be paid?

It’s important to document your decisions and the reasons for them, because if the Department of Labor ever audits your group health plan the auditor will want to see your MLR rebate documentation. Note that there is no minimum amount (de minimis exception) below which plan sponsors and employers do not have to comply with the MLR rebate rules.

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.  If you are a Leavitt client, please contact your Leavitt advisor if you would like copies of these documents.

For several years Leavitt posted a detailed article about the MLR provisions.  Last year and this year we are only posting a summary, since the details remain the same as in prior years. For the detailed 2015 article, click here.

The Short Answers to the Four Questions Above

The detailed article provides valuable information, but the short answers to the above four questions are:

  1. 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.
  2. 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.  (DOL Technical Rel. 2011-04)
  3. 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.
  4. The portion of the rebate that is “plan assets” must be paid out within three months of the date the employer receives the check from the insurer, or the employer must establish a trust to hold plan assets.

(DOL Technical Release 2011-04 addresses all the above questions and more.)

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%.

For example, what this means in the small group market is that the insurer must spend at least 80% of the total premium revenues on medical claims and health care quality improvement. Most states currently define a small employer as one who employs up to 50 employees. However, according to the UHC website, for the 2016 rebate reporting year the following 13 states define small group as 1 – 100 employees: Alaska, Arkansas, California, Colorado, Florida, Louisiana, Nebraska, New York, Ohio, Tennessee, Texas, Utah and Wisconsin.

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).  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.

Click here for a matrix by Kaiser Family Foundation showing the total rebate amounts per state for last year’s MLR rebates (rebates received in 2016, based on 2015 premiums) and the average amount per family that received a rebate.  This article is on the KFF.org website.

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 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.

 

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