The Affordable Care Act requires health insurers to report information about their medical loss ratio to the Department of Health and Human Services each year. The medical loss ratio (MLR) is the cost of claims plus the amount expended on health care quality improvement as a percentage of total premiums. If an insurer spends too much on administrative expenses instead of on providing benefits, it will fail the MLR requirements.
Rebates could arrive as early as September 2018. Rebates may be made in either a premium credit or a lump sum payment. They are generally considered plan assets, and employer sponsors of ERISA covered health plans must use the rebates for the benefit of plan participants.
Generally, rebates may be used as follows:
- To reduce future premiums for current participants;
- To enhance benefits;
- To pay reasonable plan expenses;
- To pay current participants;
- To pay former participants.
An employer who receives a rebate will have to conduct an analysis to determine what portion of the payment should be given back to employees and what portion of the payment can be retained. An employer will also have to decide if the rebate will be shared with only active employees or returned to COBRA participants, as well. Employers will have to act quickly, because rebates must be used within 3 months of receipt.
It’s important to document how you allocated the MLR rebate and to whom, because this is one of the items on the Department of Labor’s audit checklist of ERISA group health plans.
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