Under the Affordable Care Act, insurance carriers are required to spend a minimum percentage of premium dollars on medical care and health care quality improvement. This minimum percentage is referred to as “medical loss ratio” (MLR) and is set at 85% for large group market issuers, 80% for issuers in the small group and individual markets. Any issuer that does not meet the MLR standard for a year must provide a rebate to its policyholders. MLR rebates for 2014 were due to policyholders by September 30, 2015.
An employer who received a rebate for its group health plan should carefully consider the proper course of action. Most group health plans are subject to ERISA. ERISA requires that plan assets be used for the exclusive benefit of plan participants, which means that where an MLR rebate qualifies as a plan asset, the employer cannot retain the rebate for its own benefit. If participants are required to contribute an amount toward the premium, a portion of the rebate equal to the percentage of the premium cost paid by participants is considered a plan asset.
The portion of the rebate that constitutes a plan asset must be used to the benefit of plan participants. An employer can either directly distribute the rebate equally among all participants, or apply the rebate toward future participant premium payments in the form of a credit. In either case, the rebate must be used within three months of receipt, and employers should ensure the process is adequately documented in order to demonstrate compliance with handling guidelines.
For more information on MLR rebates and distribution guidelines, download our publication.