US Medical Loss Ratio Rebate Rules
US Medical Loss Ratio rebate rules are part of the Affordable Care Act (ACA). Health insurance issuers must meet medical loss ratio (MLR) standards or provide rebates to policyholders. Rebates are generally issued to employer plan sponsors by September 30 following the end of the MLR reporting year.
It is important to understand what part of a rebate is ‘plan assets’ because under ERISA plan assets must be used for the exclusive benefit of plan participants.
- If the employer paid 100% of premiums, the rebate is generally not a plan asset and the employer retains the rebate.
- If the participants paid 100% of premiums, the entire rebate amount is a plan asset.
- If the employer and participants shared the cost of coverage the percentage paid by the participants is a plan asset.
MLR rebate rules specifically provide that the plan asset portion of the rebate must go to participants (past or current) enrolled in the plan that generated the rebate. If distributing the rebate would result in large per-employee payments, those payments should go to individuals who were covered by that plan during the period of coverage that generated the rebate. However, most rebates are smaller per employee amounts so those payments can be distributed to current plan enrollees.
Plans must also distribute ‘plan assets’ within three months to avoid ERISA trust requirements. This generally leaves two approaches to allocating the plan asset portion of a MLR rebate:
- Issue a rebate check to employees who were participants in the plan for the period of coverage that generated the rebate using a fair, objective allocation method.
- Use the rebate to reduce existing or future participant premiums for that benefit option (a premium holiday for current participants or to reduce costs or enhance the benefit in the next plan year).
Given the three-month window in which plan assets must be distributed, the premium holiday option is often the most practical approach. Note that non-federal government employers and other non–ERISA plans may use the rebate to reduce current employee premiums or premiums for the upcoming plan year for participants covered under any benefit option the employer offers – an option not available for ERISA-covered plans.
For more information on MLR Rebates see Alliant Insight, MLR Basics.
Alliant, Asinta’s employee benefits consulting Partner in the US provided this information about the US Medical Loss Ratio rebate rules.