Under the Patient Protection and Affordable Care Act (“PPACA”) medical insurance contracts (but not for self-funded plans) for the large group market have to return premiums that exceed 85% (80% for small groups, generally those that have fewer than 100 participants) of claims paid under the contract—referred to as medical loss ratio (MLR) insurance rebates.
When this mandate was first effective there was a scramble to figure out what to do with the rebates and how to allocate those amounts.
Over time, the insurers have gotten more savvy about pricing their products and determining what is and is not properly categorized as a claim so that they can avoid paying rebates. In addition, employers have some procedures in place to make those determinations.
How to Apply Those Rebates
Nevertheless, there are still rebates being paid, and employers often have difficulty figuring out how to apply the rebates.
The rebates are plan assets, so ERISA fiduciary requirements do apply and generally that would mean returning to individuals the portion of the rebate generated by their individual contributions.
That is an easy math problem, but it is often a difficult practical problem. The amounts are typically small and sometimes the employees who generated the rebates are not even employed by the employer.
That all leads to employers who would rather make other arrangements to avoid tracking down individuals and sending checks for small amounts (even less than $1 in some cases).
Alternatives to Returning the Rebates
While returning those amounts in full in proportion to the employee share of the premium is the best practice, there are other options that employers could consider. Premium holidays (or discounts) and sometimes using the rebates to offset administrative costs could be potential alternatives if the administrative hassles of sending the money to all the participants are too expensive and complex.
The attached Alert gives more insight into those possibilities.