What employers need to know about medical loss ratio rebates

HRS Insight

Sponsors of insured group health plans may soon be receiving rebates of premiums paid in 2011 from the plan's insurance carrier ("the insurer") as required under healthcare reform.  Under the Patient Protection and Affordable Care Act, insurers are required to make such rebates if they did not spend a specified percentage (generally, 80% or 85%) of premiums earned in 2011 on healthcare services and activities to improve healthcare quality. Insurers must send these "medical loss ratio" ("MLR") rebates for 2011 premiums to policyholders by August 1, 2012.  Many employers have already received communications from their insurer regarding pending rebates for group health plans that they sponsor.

If an employer received a MLR rebate with respect to one or more of its group health plans, the employer must analyze plan documents, including trust documents, if any, to determine whether the rebate constitutes plan assets or must otherwise be used in whole or in part for the benefit of plan participants.

To the extent that employees are entitled to all or a portion of the rebates, employers must also determine the appropriate tax treatment for any resultant cash rebates or premium holidays provided to employees.

The rules give employers flexibility in deciding how to use the rebate attributable to participant contributions -- to provide a premium holiday or pay it directly to participants.

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