It’s 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.
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.
Why it Matters What the Plan Sponsor does with the MLR Rebate
There are several reasons it matters what a plan sponsor does with the MLR rebate and also that the plan sponsor documents what it did with the money:
- If plan participants paid for part of the premiums for the insurance policy to which the rebate pertains, it is likely that part of the MLR rebate is “plan assets” — which can only be used for the exclusive benefit of plan participants and beneficiaries. The part of the MLR rebate that is attributable to employer contributions belongs to the employer and can be used for whatever purposes it wishes.
- 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. Sponsors of insured plans generally have not established trusts and do not want to (because they are unnecessary and are an additional cost and administrative burden), so it is important to timely apply any MLR rebate amounts that are plan assets.
- If the plan sponsor does subsequently receive an audit letter from the Department of Labor, it will most likely request substantiation of how the plan sponsor determined what part of the MLR Rebate was “plan assets” and how these plan assets were applied. Leavitt clients can contact their Leavitt advisors for an Excel document and MLR Employer Rebate Documentation to use for this purpose.
- There is no minimum amount (de minimis exception) below which plan sponsors and employers do not have to comply with the MLR rebate rules.
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).
- 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 will the rebate be paid or used?
- When must the rebate be paid?
As noted above, it’s important to document your decisions and the reasons for them, in case the DOL ever audits your group health plan. You can contact your Leavitt advisor if you would like documents to help you document your MLR rebate decisions.
For several years Leavitt posted a detailed article about the MLR provisions. The past two years we are only posting a summary, since the details remain the same as in prior years. For the detailed 2015 article, click here. https://media.leavitt.com/GUID/460f4f32-552e-49c2-b4c7-06213f4d1e55/9-30-15MLR2015Updatearticle.pdf.aspx
The Short Answers to the Four Questions Above
The detailed article provides valuable information, but the short answers to the above four questions are:
- 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.
- 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).
- 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.
- 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.
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.
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 subscriberin a group: Insurer is not required to pay the rebate if the rebate is less than $5 per subscriber.
Cites to Additional MLR Information
- Government webpage on MLR rebates: https://www.cms.gov/apps/mlr/mlr-search.aspx (This is CMS/CCIIO, which is Centers for Medicare and Medicaid Services/ Center for Consumer Information & Insurance Oversight)
- Link to KFF.org article and matrix showing total rebate amounts per state for MLR rebates, and average amount per family that received a rebate, for 2012 – 2016. As of 10-12-18 does not include 2017 data. Total Medical Loss ratio (MLR) Rebates in All Markets for Consumers and Families.