MEDICAL LOSS RATIO (MLR) REBATE
FREQUENTLY ASKED QUESTIONS & ANSWERS
How long does the employer have to apply the rebate to future premiums or distribute the rebate via employee checks?
According to the US Department of Labor (DOL) Technical Release 2011-04:
“In the case of these types of plans, with respect to which a trust is not established in reliance on TR 92-01, the Department would treat the trust relief under TR 92-01 and the limited reporting exemptions in 29 CFR 2520.104-20 and 104-44 as available for premium rebates that are plan assets if they are used within three months of receipt by the policyholder to pay premiums or refunds as provided in 2520.104-20 and 2520.104.44”
Can an employer use the rebate for end of the year bonuses?
This does not appear to be permissible because carriers had to get rebate checks to policyholders by August 1, 2012. Consequently, December 2012 would not be “…within three months of receipt by the policyholder…” (See page 4 of DOL Technical Release 2011-04.)
Can the employer just keep the whole rebate and not share it with the employees or deposit the rebate check in the company account then use it to pay the employer portion of future medical premiums (leaving employee contributions the same)?
If the employees contributed to the employee and/or dependent premium for the rebate-eligible plan then this method of handling the rebate does not appear to be allowable according to the following section of the DOL Technical Release Bulletin 2011-04:
“In any case, employers that sponsor group health plans that use insurance policies to provide benefits would be prohibited by ERISA section 403©(l) from receiving a rebate amount greater than the total amount of premiums and other plan expenses paid by the employer.” (See paragraph 2 of page 3.)
The DOL Technical Release 2011-04 refers to ERISA.
My organization has less than 20 employees and provides health benefits through a small group insurance policy purchased from a carrier. I do not think these ERISA references apply to this company. Am I correct?
We are not ERISA attorneys or labor experts so we recommend you seek expert counsel regarding a specific company. However, it is our understanding that most employer-sponsored group health plans (even small group plans), except church plans and government plans, are subject to at least some aspects of ERISA Title 1. Often, these small employers are not aware of their ERISA responsibilities. Consequently, we urge you to review the fiduciary responsibilities related to the MLR rebates contained in this document. Please contact the Employee Benefits Security Administration (EBSA) division of the Department of Labor (DOL) for more information on ERISA. For your convenience, here is a link to the DOL “elaws – Health Benefits Advisor for Employers” where you can answer a few questions to determine which portions of ERISA Title I apply to their company. http://www.dol.gov/elaws/ebsa/health/employer/r3.htm
Can you provide a chart showing which plans were required to provide MLR rebates for easy reference?
Yes, we've made available an MLR Rebate Caculator for your easy reference. To determine the percentage of rebate subtract the carrier’s actual Medical Loss Ratio (MLR) from the Medical Loss Ratio (MLR) Standard for the type of plan (80% for individual and small group plans.85% for large group plans). The result is the rebate percentage. For example, a small group HMO plan had an MLR in 2011 of 78%. The MLR Standard for small group is 80%. Therefore, the rebate percentage is 2%.
Is the MLR rebate based on medical premiums only or does it include ancillary products also?
Currently, the rebates are for medical plans only that did not reach the required Medical Loss Ratio (MLR). Consequently, your should ask your payroll company or payroll person to provide a breakdown of the medical only contributions; separate from ancillary products. If your payroll company, or payroll person, does not have a separate breakdown then you will need to determine if the time spent having someone go back to determine the medical only portion of these employee contributions is cost-effective. The employer can elect to include the employee contributions for ancillary products in the calculation for employee rebates.
The employees will get a slightly higher rebate but this may be a less labor-intensive and, thus, more costeffective way of handling this matter. There is no penalty for an employer who provides a greater rebate amount to employees than what is required by law.
How do you calculate the rebate amount for each employee when the employer pays a different percentage (or amount) for employees than for dependents; or when the employer pays a percentage (or amount) based on a particular plan design?
We have great news! Here is a link to the updated MLR Rebate Calculator which makes it easy for you to handle any of these scenarios. You will note this calculator requires entry of the amount paid by each employee in 2011 for their employee + dependent medical premium based on your records.
These amounts already should reflect the appropriate employer and employee contributions; even if these contributions changed at renewal in 2011. If your records are correct & the entries are accurate then this calculator should provide the correct rebate amounts no matter how complicated the employer/employee contributions.
Are employers required to send a portion of the MLR rebate to former employees who were covered on the rebate-eligible plan for part or all of 2011?
According to US Department of Labor Technical Release 2011-04:
“In deciding on an allocation method, the plan fiduciary may properly weigh the costs to the plan and the ultimate plan benefit as well as the competing interests of participants or classes of participants provided such method is reasonable, fair and objective. For example, if a fiduciary finds the cost of distributing shares of a
rebate to former participants approximates the amount of the proceeds, the fiduciary may properly decide to allocate the proceeds to current participants based on a reasonable, fair and objective allocation method.”
Please note this Technical Release uses the term “former participants” rather than “former employees”. Employers can have former employees who are current participants because they elected CalCOBRA or COBRA coverage.