Employers that sponsor fully insured group health plans may soon receive medical loss ratio (MLR) rebates from their insurers and should be prepared to determine how to handle any rebate.
The ACA requires insurers to submit an annual report to HHS to account for plan costs. If the insurer does not meet the MLR standards, it means that too large a portion of the premiums charged in the previous year went toward the insurer’s administration, marketing, and profit rather than paying plan claims and funding quality improvement initiatives. In such cases, the insurer must provide rebates to policyholders. Generally, insurers distribute rebates, if applicable, to employer plan sponsors by the end of September.
Employers that sponsor fully insured plans and receive a rebate should keep in mind that there are strict guidelines as to how the rebate may be used or distributed. Employers should review their plan documents for direction. Generally, absent any specific direction in the plan documents, any portion of the rebate that is considered an ERISA plan asset (i.e., the portion attributable to participant contributions) must be returned to participants in some form (premium reduction or holiday, cash refund, or benefit enhancement) within 90 days of receipt. In such cases, the employer, as plan administrator, has a fiduciary obligation to ensure ERISA plan assets are used exclusively for the benefit of plan participants and beneficiaries. Special rules apply to governmental and church plans not subject to ERISA.
For further information, PPI clients can download a copy of our publication MLR Rebates: A Guide for Employers from the Client Help Center.