MLR Rebates

Posted by BAS - 24 September, 2020

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The Medical Loss Ratio (MLR) provisions of the Affordable Care Act require insurers to spend at least a certain percentage of employees’ premium dollars on clinical care and not 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.

The COVID-19 pandemic has decreased the use of health coverage, particularly for preventive care and elective procedures. As a result, many insurers have collected more premium dollars than they have paid in clinical care. This means employers may be receiving much larger MLR rebates than ever before. Rebates may be made in either a premium credit or a lump sum payment.

Employers will have to determine what to do with rebate money. As a first step, employers should understand if the amounts are plan assets. If a plan asset, employer sponsors of ERISA covered health plans must use the rebates for the benefit of plan participants. 

  • If premiums are 100% paid by the employer, the MLR rebate is not a plan asset
  • If premiums are 100% paid by the employee, the entire MLR rebate is a plan asset
  • If premiums are split between the employer and the employee, the employee portion of the MLR rebate is a plan asset
  • If premiums are paid by a trust, the MLR rebate is a trust asset

Generally, rebates that are plan assets may be used as follows: 

  • To reduce future premiums for current participants
  • To enhance benefits
  • To pay reasonable plan expenses
  • To pay a cash refund to participants

An employer who receives a rebate will have to conduct an analysis to determine what portion of the payment is a plan asset and how the amounts should be allocated. 

Topics: Health Care Reform (ACA), Affordable Care Act, HR & Benefit Plans, HR & Benefits News, Technology News


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