Under the Patient Protection and Affordable Care Act (PPACA), aka Healthcare Reform, health insurance companies are required to spend a minimum of their premium dollars for health care. This percentage, called medical loss ratio (MLR), is 80% of premiums for groups under 100 employees or 85% for groups with 100 or more employees. If an insurer does not meet this standard, it is required to rebate the excess to employers by August 1, 2012. Employers need to become familiar with the MLR rebate rules and if receiving a rebate, know what needs to be done to be compliant with the law.
DOL Technical Release No. 2011-04 makes it clear that, if participants contribute to the cost of coverage, a portion of the rebate must be considered plan assets. The DOL states that the plan fiduciary (e.g. the employer as plan administrator) must decide how to credit the participants' portion of the rebate, and that the method must be "reasonable, fair and objective..." This, of course, leaves an employer with a variety of options. For instance, you may choose to provide the rebate in the form of a lump-sum payment or premium credit.
The insurance companies are also required to notify all members if their employer did or did not receive a rebate. It is important, then, that you be prepared to answer any questions your employees might have regarding these notifications.
If You Receive A Rebate Check
The Department of Labor's guidance does not provide a safe harbor allocation method, but requires the method to be reasonable, fair, and objective. One simple approach is to use the participants' rebate to your employees by lowering premiums for a period of time. Of course, you will need to consider a number of variables, such as the number of plans you offer, total premium paid, and the employer and participant cost share, and whether you have union employees, to determine the rebate amounts.
First, use the following calculation to determine the amount of the rebate check that should be distributed to employees:
Total 2011 Aggregate Participant Medical Contributions
(divided by)
Total 2011 Aggregate Medical Premiums Paid
= (equals)
x%
Second, x% gets multiplied by the full amount of the rebate check to determine total amount to be distributed to employees.
Enter the total amount to be distributed to employees (from the above calculation) in the Total EE Portion Rebate field highlighted in yellow.
- Enter the number of employees by coverage tier:
- EE = employee only coverage
- ES = employee plus spouse coverage
- EC = employee plus children coverage
- FAM = family coverage
- We advise that you use the number of employees on your plans as of August 1, 2012.
The law requires that premium rebates must be allocated within three months of receipt. You will need to decide whether to credit the active employees covered by the plan or also include COBRA participants.
If you are self-funded, your plan is not eligible to receive a refund. Neither you as the employer, nor your employees, will receive any communication regarding rebates from the insurance issuers.
We provided this approach as an example, but are not offering legal advice. Given the number of variables, you may wish to consult with your legal counsel.
Health Insurers Paying Rebates
Large Employer Market (100+)
- Humana Insurance Company
Small Employer Market (2-99)
- American Alternative Insurance Corporation
- Trustmark Life Insurance Company
- John Alden Life Insurance Company
- Humana Insurance Company
- Humana Health Plan, Inc
- Anthem Insurance Company
