Benefits U

Medical Loss Ratio Rebates: Allocation and Distribution of Funds

While much as been written about the rebates and the hundreds of millions of dollars to be refunded, the actual percentage of employers receiving rebates in Georgia is much smaller than the press would indicate. By now most employer groups have received one of two letters from the group health insurance company(s) that provided coverage during 2011.

The majority of employers will receive a letter stating that their insurance company met or exceeded the minimum loss ratio (MLR) for the market segment the employer’s plan was part of in 2011 and therefore, no rebates will be refunded to the employer group. In addition, an accompanying letter will be included to provide to employees explaining the MLR provision of the Affordable Care Act and stating the insurance carrier has met the federal requirements.

If your plan was in the market segment that an insurance carrier is required to issue a rebate for, you will receive the federally required notification and the full amount of the rebate no later than August 1.

Under the vast majority of cases, these rebates are considered plan assets and are subject to ERISA fiduciary requirements. The purpose of this notice is to provide you with general guidance on how the rebates can be distributed between the employer and plan participants according to the fiduciary requirements.

This is general information only and is not intended to be legal or tax advice. Please refer to your legal or tax advisor for specific legal/tax advice.

The following information and guidance comes from Federal Register Volume 76, no: 235 issued on December 7, 2011. This information is considered an “Interim Final Rule” and while subject to change, it can be relied on in the interim without fear of penalty until the final rule is issued.

If a rebate is payable, the total amount will be sent to the plan sponsor/policyholder (generally the employer). The employer, in their fiduciary role, will be responsible for calculating the employer’s portion and the amount to be provided to the employees. Generally speaking, the portion of the total premium funded by employees (subscribers) is the portion of the rebate they are entitled to. The Federal guidance on this subject states: “if the… Plan’s subscribers paid 40% of the total premium, the policyholder must use 40% the rebate for the benefit of the subscribers.”

Calculation of the percentage can be done either based upon the actual premiums paid in the 2011 plan year or the percentage of premiums in the current year. Previous Federal guidance allows the employer to make the determination as long as it is fair, equitable and consistent from year to year.

According to the Federal Register, the options below… ”were created to provide maximum flexibility to policyholders and employers while ensuring that employees receive the benefits of the rebate. No single option is preferred by CMS.”

At the option of the Policyholder, the rebate may be used:

(1) To reduce the subscribers’ portion of the annual premium for the subsequent policy year for all subscribers covered under any group health policy offered by the plan:

(2) To reduce the subscribers portion of the annual premium for the subsequent policy year for only those subscribers covered by the group health policy on which the rebate was based; or

(3) To provide a cash refund only to subscribers that were covered by the group health policy on which the rebate is based.

In all three options, the rebate is used to reduce the premiums or is paid to subscribers enrolled during the current year, and does not have to be paid to subscribers covered during the year in which MLR was calculated (2011). This favorable ruling relieves employers of the burden of tracking former employees, determining which subscribers were previously covered by plans receiving rebates and at what level of coverage they formerly had.

Previous guidance indicates the rebates must be distributed to subscribers within 3 months of their receipt by the employer group.

While much as been written about the rebates and the hundreds of millions of dollars to be refunded, the actual percentage of employers receiving rebates in Georgia is much smaller than the press would indicate. By now most employer groups have received one of two letters from the group health insurance company(s) that provided coverage during 2011.

The majority of employers will receive a letter stating that their insurance company met or exceeded the minimum loss ratio (MLR) for the market segment the employer’s plan was part of in 2011 and therefore, no rebates will be refunded to the employer group. In addition, an accompanying letter will be included to provide to employees explaining the MLR provision of the Affordable Care Act and stating the insurance carrier has met the federal requirements.

If your plan was in the market segment that an insurance carrier is required to issue a rebate for, you will receive the federally required notification and the full amount of the rebate no later than August 1.

Under the vast majority of cases, these rebates are considered plan assets and are subject to ERISA fiduciary requirements. The purpose of this notice is to provide you with general guidance on how the rebates can be distributed between the employer and plan participants according to the fiduciary requirements.

This is general information only and is not intended to be legal or tax advice. Please refer to your legal or tax advisor for specific legal/tax advice.

The following information and guidance comes from Federal Register Volume 76, no: 235 issued on December 7, 2011. This information is considered an “Interim Final Rule” and while subject to change, it can be relied on in the interim without fear of penalty until the final rule is issued.

If a rebate is payable, the total amount will be sent to the plan sponsor/policyholder (generally the employer). The employer, in their fiduciary role, will be responsible for calculating the employer’s portion and the amount to be provided to the employees. Generally speaking, the portion of the total premium funded by employees (subscribers) is the portion of the rebate they are entitled to. The Federal guidance on this subject states: “if the… Plan’s subscribers paid 40% of the total premium, the policyholder must use 40% the rebate for the benefit of the subscribers.”

Calculation of the percentage can be done either based upon the actual premiums paid in the 2011 plan year or the percentage of premiums in the current year. Previous Federal guidance allows the employer to make the determination as long as it is fair, equitable and consistent from year to year.

According to the Federal Register, the options below… ”were created to provide maximum flexibility to policyholders and employers while ensuring that employees receive the benefits of the rebate. No single option is preferred by CMS.”

At the option of the Policyholder, the rebate may be used:

(1) To reduce the subscribers’ portion of the annual premium for the subsequent policy year for all subscribers covered under any group health policy offered by the plan:

(2) To reduce the subscribers portion of the annual premium for the subsequent policy year for only those subscribers covered by the group health policy on which the rebate was based; or

(3) To provide a cash refund only to subscribers that were covered by the group health policy on which the rebate is based.

In all three options, the rebate is used to reduce the premiums or is paid to subscribers enrolled during the current year, and does not have to be paid to subscribers covered during the year in which MLR was calculated (2011). This favorable ruling relieves employers of the burden of tracking former employees, determining which subscribers were previously covered by plans receiving rebates and at what level of coverage they formerly had.

Previous guidance indicates the rebates must be distributed to subscribers within 3 months of their receipt by the employer group.

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