An Interim Final Rule issued by the Department of Health and Human Services provides that fees paid to brokers and agents will not be considered part of "medical care" for purposes of limits imposed on insurers under health care reform. The Medical Loss Ratio (MLR) provisions of the Affordable Care Act require insurers to spend at least a specified percentage of employees’ premium dollars on clinical care, rather than on administrative expenses such as executive salaries, overhead, marketing and profit. If an insurer does not spend enough on patient care to satisfy the MLR provisions, the insurer must make financial adjustments and provide rebates to customers. Health care reform sets the minimum MLR level at 85 percent for the large group market and 80 percent for the small group market. This means that administrative and other non-clinical costs can be no more than 15 or 20 percent of the insurer’s revenue. If an insurer fails to meet these standards, the insurer will be required to provide a rebate to customers beginning this year (2012).
Fees paid to brokers and agents will not be considered medical care or health care quality improvement for purposes of calculating MLR. Therefore, insurers will have to include broker payments as part of the 20% (or 15%) administrative expense (non-medical care/quality improvement) allocation. Rebates will be paid to employer policy holders in the form of cash or reduced premiums, but notice of a rebate must be given to both the employer and participating employees. The government has clarified that rebates will not be subject to tax. Employers will be liable for proper handling of the rebates, which may require an allocation for the benefit of employees. The first rebate payments are expected in August 2012.