PEO Industry Best Practice:
Medical Loss Ratio Rebates
Background:
Under federal health care reform,[1] health insurers are required to meet certain “medical loss ratios” (MLRs) or rebate the difference to the policyholder. In simplest terms, 85% of the premiums a carrier receives for
a large group plan (51 or more eligible employees) or 80% in the case of small group plans (50 or fewer eligible employees) must be spent on delivering health care versus administrative costs. [2] To the extent the actual amount spent on health care is less than the prescribed percentage, the difference must be rebated to the policyholder. The first rebates are expected in August of 2012.
Rebates, when required, are to be issued to policyholders of fully insured plans. “Policyholder” can mean an individual or an employer-sponsored plan in the case of group health plans. Carriers are required to send a notice to each “participant” in the plan (i.e. employees) when a rebate is paid to an employer sponsor.
The regulations[3] governing rebates direct issuers to pay the rebate to the policyholder of group health plans, but do not specify responsibilities under ERISA for plans or sponsors subject to that Act to distribute the rebate. However, the Employee Benefits Security Administration (EBSA) of the Department of Labor has issued a Technical Release outlining certain responsibilities. An employer having a plan covered by ERISA for plan assets, has fiduciary responsibilities with regard to all plan assets, including any rebate of premiums.Technical Release 2011-14 provides in part “…plan assets generally must be held in trust [Note: the Release discusses exceptions to the trust requirement], may not inure to the benefit of any employer, and must be held for the exclusive purpose of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan.” Basically the Release emphasizes that rebates inure to the benefit of the beneficiaries of the plan.
What to Do Now?
- Consult with your carrier and benefits counsel concerning the possibility of a rebate and how to handle it. If you have not already received a notice, contact your carrier to inquire whether the carrier is anticipating the plan will be eligible for a rebate and, if so, a ballpark figure for the same.
- Review your plan and plan documents. The plan may specifically provide how rebates are to be handled and, if so, it is controlling to the extent it does not conflict with ACA or the rebate regulations.
- Study the available resources and requirements.
- Plan how you intend to use the rebates and how to provide information to employees and answer their questions. Will you rebate to the individual level, use rebates toward reducing beneficiaries’ future premiums or to enhance benefits?
- Calculate the potential distributions. According to the rules, you will have to determine who paid what portion of each premium and how the rebate is appropriately apportioned.
Key Resources
A number of key resources are available to help PEOs with MLR rebate requirements:
Like many other elements of the ACA, rebates are not easily understood and are complicated in application. Coordination with your carrier and consultation with competent benefits counsel is critical.
As of 7.20.12
[1] Patient Protection and Affordable Care Act (“ACA”) as amended.
[2] ACA sets the large employer level at 100 but allows the states to lower that to 51+
[3] 45 CFR Part 158)