Medical Loss Ratio
According to the Centers for Medicare and Medicaid Services, the Affordable Care Act requires health insurers to submit data on the proportion of premium revenues spent on claims, quality improvement, and other expense such as marketing and profit. This calculation is known as the Medical Loss Ratio (MLR), and it also requires insurers to issue rebates to the employer if the calculation does not meet minimum standards.
The Affordable Care Act requires insurance companies to pay annual rebates if the MLR is less than 80% for small employer group policies or 85% for large employer group policies. Funds considered a plan asset must be shared with members of that plan.
Employee Contributions
Determining whether any part of the refund is a plan asset is based on the terms of the ERISA Plan Document and whether employees paid any portion of the premiums.
If any part of the rebate is considered a plan asset, the employer must decide how to allocate the refund consistent with ERISA’s fiduciary rules. Some options are:
- distributing to participants in cash or gift cards;
- enhancing plan benefits; or
- reducing future participant premiums
Guidance on the rebates suggests this allocation must occur within three months of receipt of the rebate, or the plan assets must be held in a trust.
Communication with Employees
If an employer decides not to return a portion of the refund directly to employees, they may want to consider proactively communicating with employees regarding how they intend to use the plan asset portion of the rebate for the employees’ benefit. This may help alleviate employee relations issues arising when employees receive letters about the rebates from the insurance carrier.
After speaking with our Compliance Team, we wanted to share a few strategies:
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In many cases, the size of the MLR rebate is so small that going through the calculation to determine how much should be distributed to participants is very time consuming in light of the small refunds.
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Enhancing plan benefits might be a good alternative, and this can include using the funds towards some type of wellness plan or healthy activity/contest for employees to participate in.
If you have further questions about your MLR rebate, please click here to schedule a call with a member of the Fall River team to learn more.
