The Medical Loss Ratio (MLR) provision of the Affordable Care Act (ACA) took effect in 2011 and requires that health insurers spend a minimum percentage of all premiums received toward medical claims and programs that improve the quality of healthcare. When an insurer does not meet minimum MLR requirements, they are required to rebate premiums back to policyholders.
Minimum MLR standards are set at 80% for the individual and small-group markets, and 85% for the large-group market. MLR calculations are performed on a calendar-year basis and insurers who fail to meet minimum MLR standards must provide rebates to applicable policyholders no later than August 1st of the following year.
Insurance carriers are required under the ACA to provide one of two possible MLR notices to all policyholders stating that they are either ineligible for a rebate, or that they received a rebate, along with the rebate check.
Since 2011, guidance has been provided by the United States Department of Health and Human Services, Department of Labor, and Internal Revenue Service that addresses the distribution of MLR rebates and how rebates may be used by plan sponsors. Group policyholders who receive an MLR rebate may use the rebate in one of several ways, depending on the extent to which employees shared in the cost of insurance premiums paid during the period for which a rebate was provided. If an employer intends to provide a cash refund, they should act quickly, as distribution to plan participants is required within 90 days.
In general, rebates may be used to reduce premiums for participants going forward, or they may be used as a cash refund to participants that were covered during the period that resulted in the MLR rebate, though this may result in taxable income to the participants receiving cash refunds. Ultimately, the calculation of employer rebate to be provided to plan participants should be based on the participants’ contribution to overall premium costs during the period that is addressed by the rebate.
Both Blue Shield of California and Anthem Blue Cross have recently announced that some policyholders will receive rebates for premiums paid on policies with coverage in existence during the 2012 calendar year. Guidance for individual and group policy holders regarding MLR rebates has recently been provided by Blue Shield of California and Anthem Blue Cross, as well as the Society for Human Resource Management (SHRM).
For more information regarding MLR rebates or other provisions of Health Care Reform please contact Gray & Troy Insurance to speak with a Certified Affordable Care Act Specialist, or to learn more simply click on the button below and we will contact you.