Did your organization receive a Medical Loss Ratio (MLR) rebate this year? If so, there is little time left to decide what to do with it. First, let’s take a look at what the MLR rebate is and who is potentially entitled to it.
The ACA (Affordable Care Act) has a MLR Rebate provision requiring health insurers to pay rebates to policyholders if the insurers fail to meet specified MLRs. The MLR provisions do not apply to self-funded health plans or to insurance policies for “excepted” benefits such as stand-alone dental or vision coverage. The MLR is the percentage of total premium revenue (not including taxes and fees) that is spent on medical claims and health care quality improvement activities (as opposed to administrative and marketing expenses and profits). The requirements are as follows:
- In the large group market insurers must spend at least 85% of premium revenue on medical claims and quality improvement activities (85 cents of every dollar received by the carrier).
- In the small group and individual markets insurers must spend at least 80% of premium revenue on medical claims and quality improvement activities (80 cents of every dollar received by the carrier).
So what should you do if your organization receives a rebate check? First, determine what portion of the rebate your employees are entitled to receive. For example, if you, the employer, pays 75% of the premium and employees pay 25%, you would distribute 25% of the rebate to your employees. Second, you should determine an equitable way to use the rebate for your employees’ benefit. For example, you can apportion rebates so that employees with family coverage (and therefore paid a larger share of premiums) would get a larger share of the rebate. Once you have decided each employee’s share of the rebate, there are three options. You can:
- Issue rebate checks,
- Give participants a “premium holiday” by applying the rebate amount toward future premium payments, or
- Use the rebate to provide enhanced benefits to participants.
Regardless of the option you choose, you must distribute the rebate to employees within 90 days. In general, the amount of these rebates, particularly when calculated on a per-participant basis, are not large and are often in the range of $20 to $30 per participant.
Communication Is Key – Regardless of what approach you use, once your organization receives a rebate, you must communicate your intentions to employees. Each year, prior to the August deadline, insurers are required to send a letter to employees covered under the plan letting them know about the rebate. After receiving these annual notifications, employees are likely to contact their HR and benefit representatives asking about the rebates and amounts involved. If you – the employer – decide not to issue rebate checks to individual employees—for example, because the amounts are too small to justify the cost—it is important for you to communicate that decision to your employees and the reason for it as soon as possible.
Even if your organization did not receive a rebate this year, the MLR rebates will be an annual rite for insurance companies that do not maintain an appropriate MLR in their administrative operations. Therefore, you should think through how your organization will handle a rebate situation in the future and take steps to improve the process if your organization received a rebate this year.