If you are one of the lucky employers who received a Medical Loss Ratio (MLR) rebate, you may be wondering what to do.
Here are some tips to help keep you compliant and keep you out of trouble with the IRS.
What is MLR and why did I receive a rebate?
The Affordable Care Act (ACA) requires health insurers to spend a minimum percentage of the premiums they collect every year on health care services and certain improvement activities for their members. If you received a MLR rebate, that means your carrier spent less than what they should have on health care services.
Does this mean I overpaid in premiums during the year?
No. The minimum MLR requirement is calculated for an insurer’s entire book of business within each of three market segments in every state: individual policies, small group market (groups with less than 50 employees), and large group market (groups with 51+ employees). Premiums are typically set as much as 15 months in advance.
Does the MLR requirement apply to all plans?
No. It does not apply to self-insured plans and Medicare Supplement plans.
How will I know if I will receive a rebate?
All rebates must be issued to eligible employer groups by September 30, 2017. If you are eligible for a rebate, you will be notified by September 30, 2017. Your employees, including COBRA participants, will be notified by the carrier about the rebate as well.
What should employers do with the rebates?
Employers have fiduciary responsibilities regarding use of the MLR rebates. Some or all of the rebate may be considered an asset of the plan, which must be used for the benefit of employees covered by the policy.
As a general summary, for group plans that are governed by ERISA, an employer must distribute the rebate in one of three ways:
1. Reduce employees’ portion of the premium for the upcoming year for those subscribers covered under any option offered by the health plan at the time the rebate is received.
2. Reduce employees’ portions of the premium for the upcoming year for those subscribers covered under the option offered by the health plan to which the rebate applies at the time the rebate is received; or
3. Provide a cash rebate to employees who were covered by the insurance on which the rebate is based.
If employees’ premium deductions were made pre-tax, a rebate check directly to the employee would be considered taxable income under option 3.
Employers will be glad to know the Department of Labor provides employers with some leeway if the cost for distributing the rebates exceeds the per participant rebate.
Reminder: Employers must take action within 3 months from receipt of the rebate.
Here is a downloadable PDF for printing and sharing: July 2017 TDG Newsletter