The Affordable Care Act (ACA) requires health insurance issuers to spend a minimum percentage of their premium dollars on medical care and health care quality improvement. This percentage, or medical loss ratio (MLR), is 85%for issuers in the large group market and 80%for issuers in the small and individual group markets. Issuers that do not meet the applicable MLR standard must provide rebates to consumers.
The MLR requirements became effective for issuers in 2011. Rebates must be paid by August 1 following the end of the MLR reporting year. Thus, issuers are required to pay rebates by Aug. 1, 2013, based on their 2012 MLRs.
Employers with insured group health plans may receive rebates this summer based on their issuer’s 2012 MLR data. Issuers were required to submit their 2012 MLR reports to HHS by June 1, 2013, so they may already know whether they will be issuing rebates by Aug. 1, 2013. Employers that expect to receive rebates should become familiar with the MLR rebate rules and should decide how they will administer the rebates.
On March 1, 2013, HHS issued a final rule that amends the MLR program. The changes made by the final rule ensure that, beginning in 2014, issuers include premium stabilization amounts in MLR and rebate calculations. The final rule extends the annual MLR reporting deadline from June 1 to July 31 and the rebate disbursement deadline from August 1 to September 30, effective for the 2014 MLR reporting year.
An issuer that does not meet its MLR standard must provide a rebate to the policyholder, which is typically the employer that sponsors the plan in the group health plan context. For current enrollees, issuers may provide rebates in the form of a lump-sum payment or a premium credit (a reduction in the amount of premium owed).
Also, to avoid having to pay a rebate, an issuer may institute a “premium holiday” during an MLR reporting year if it finds that its MLR is lower than the required percentage. According to the Department of Health and Human Services (HHS), an issuer may use a premium holiday only if it is permissible under state law. Also, any issuers using premium holidays must meet certain other requirements, such as providing the holiday in a nondiscriminatory manner and refunding premium overpayments.
How an employer should handle any MLR rebate it receives from an issuer depends on the type of group health plan (an ERISA plan, a non-federal governmental group health plan or a non-ERISA, non-governmental plan) and whether the rebate is considered a plan asset.
Most, but not all, group health plans are governed by ERISA. Employers with ERISA plans should not assume that they can simply retain an MLR rebate. The Department of Labor (DOL) issued Technical Release 2011-4to explain how ERISA’s fiduciary duty and plan asset rules apply to MLR rebates. Any rebate amount that qualifies as a plan asset under ERISA must be used for the exclusive benefit of the plan’s participants and beneficiaries.
Contact Us: For further information, please contact Teri Kaye, CPA, Tax Partner, at 561-367-1040 or [email protected]