The Medical Loss Ratio (MLR) provision of the Affordable Care Act (ACA) requires a health insurance carrier to refund part of the premiums it receives if it does not spend at least 80% (for individuals and small employer groups) or 85% (for large employer groups) of the premiums on health care services. These MLR requirements apply to fully insured employer and individual health plans (not self-funded employers).
Anthem NH did not meet the MLR requirement in the Individual and Large Employer markets for their Matthew Thornton Heath Plans HMO products. Therefore, Anthem is required to provide rebates to those individual plans and employer plans.
All other Anthem NH products did meet the MLR requirement, and no rebates are owed.
The rebate is calculated based on the employer’s pro-rata premiums vs. the applicable legal entity/market classification premiums, and is based on covered members (including the dependents) on the employer plan.
As rebate checks are generated by billing group numbers, some employers may receive more than one check.
Anthem has also mailed the required notice to employees of employer groups who will be receiving a rebate. This includes all employees enrolled at any point during the prior year, so this can include past employees.
Employers must follow certain rules for distributing the rebate if it qualifies as a “plan asset” under ERISA. In general, most employer plans are governed by ERISA, and the employer is the policyholder.
- If the employer paid 100% of the premiums, the rebate is not a plan asset and the employer can retain the entire rebate amount.
- If participants paid 100% of the premiums, the entire rebate amount is a plan asset.
- If the employer and participants each paid a fixed percentage of the premiums, the percentage of the rebate equal to the percentage of the cost paid by participants is a plan asset.
Any rebate amount that qualifies as a plan asset under ERISA must be used for the exclusive benefit of the plan’s participants and beneficiaries. If a plan provides benefits under multiple policies, the employer must be careful to allocate the rebate for a particular policy only to the participants who were covered by that policy.
The rebate can be distributed to participants under a reasonable, fair and objective allocation method. If premiums were paid on a pre-tax basis, the rebate is considered taxable income. If the cost of distributing rebate shares to former participants approximates the amount of the proceeds, the employer may decide to limit rebates to current participants.
If distributing payments to participants is not cost-effective because the amounts are small or would cause tax consequences for the participants, the employer may utilize the rebate for other permissible plan purposes, such as applying the rebate toward future participant premium payments or benefit enhancements.
Rebates should be distributed within 3 months of their receipt to avoid the trust requirement under ERISA.
Refer to the below compliance bulletin for additional information, and contact your NEEBCo representative with questions.
How Employers Should Handle MLR Rebates