Medical Loss Ratio (MLR) Rebates

Checks will soon be going out to groups from the insurance carriers that represent a rebate of premiums on health insurance costs.

Under PPACA Health Care Reform insurance carriers are required to adhere to certain Medical Loss Ratio (MLR) guidelines.  If a group’s particular MLR is lower than specified thresholds, the carrier must issue a rebate.  Checks going out in August 2013 are for the 2012 calendar year. Employers will have 90 days from receipt of a check to make payments to participants. Groups can elect to use any rebate monies received in varying ways:

1.   To pay future premiums

2.  To allocate to wellness funds or other employee benefit programs

(Employee Benefit Advisors recommends either Options 1 or 2).

3.  To distribute the corresponding percentages to their employees.  This option can be quite cumbersome to calculate the allocation to each employee based upon their respective contributions, time covered on the plan, benefit selections, etc. (it is an administrative nightmare).

If the amount of a premium rebate is de minimis, an employer may determine that the cost of issuing checks will exceed the amount of the checks.

It is the Carrier’s responsibility to notify the groups and administer the process of issuing refunds.  It is then up to the group to decide what to do with the refund.  Remember, in Technical Release No. 2011-04 the DOL announced the rebate checks may be “plan assets” subject to the ERISA fiduciary rules. Therefore, whichever option a company chooses, we recommend that the group notify their accounting departments to keep accurate records.

(MLR variables include small or large group, fully-insured vs. self-funded, and pre or post tax.)

4 Things Employers Should Know About Providing the Health Insurance Exchange Notice

Notice Must Be Distributed to Current Employees No Later Than October 1, 2013

Following a delay in the original effective date, employers will need to comply with the new requirement to provide each employee a written notice with information about a Health Insurance Exchange (also known as a Marketplace) beginning this fall. Below are four important reminders about the notice.

  1. The notice requirement applies to employers covered by the federal Fair Labor Standards Act (FLSA).
  2. Employers must provide the notice to each employee, regardless of plan enrollment status (if applicable) or of part-time or full-time status.
  3. The U.S. Department of Labor has provided two sample notices employers may use to comply with this requirement.
  4. Notices must be provided to each current employee no later than October 1, 2013, and to each new employee at the time of hiring beginning October 1, 2013.

Technical Release 2013-02 includes additional details regarding this notice requirement.

Clients can log into HR Advisor and visit our section on Health Care Reform for information on this and other notices required to be provided and to download additional model notices available for employers and group health plans.

ACA Plan Affordability – Safe Harbors

Under the Employer Mandate (delayed until 2015) of the Affordable Care Act (PPACA), large employers must offer their full-time employees (and their dependents) the opportunity to enroll in “Affordable” coverage.  Employers that offer their employees the opportunity to enroll in coverage will be penalized if the coverage is “unaffordable” or does not provide “Minimum Value,” and an employee receives a premium tax credit or cost-sharing reduction.

Coverage is deemed affordable if the employee’s required contribution for self-only coverage does not exceed 9.5% of the employee’s household income for the taxable year. If an employer offers multiple coverage options, the affordability test applies to the employer’s lowest-cost option that also meets the Minimum Value requirement (discussed below). For purposes of the Affordability test, household income is defined as the modified adjusted gross income of the employee and any members of the employee’s family (including a spouse and dependents) who are required to file an income tax return.

Employers generally will not know their employees’ household incomes. Therefore, the regulations allow employers to use one of three affordability safe harbors to determine whether an employer’s coverage satisfies the 9.5% affordability test.

These safe harbors do not apply when determining an employer’s assessable payment, nor do they affect an employee’s eligibility for a premium tax credit. The safe harbors are optional, and an employer may choose to use one or more of these safe harbors for all employees or for any category of employees as long as it does so on a uniform and consistent basis for all employees in a category. The three affordability safe harbors include:

  1. Form W-2 safe harbor;
  2. Rate of pay safe harbor; and
  3. Federal poverty line safe harbor

W-2 Safe Harbor

Under the Form W-2 safe harbor, an employer may determine affordability by reference to an employee’s wages from that employer. Wages for this purpose would be the total amount of wages required to be reported in Box 1 of Form W-2, Wage and Tax Statement.

Under this safe harbor, an employer will not be subject to a penalty with respect to a particular employee if (1) it offers full-time employees and their dependents the opportunity to enroll in coverage, and (2) the required employee contribution toward the self-only premium for coverage does not exceed 9.5% of the employee’s Form W-2 wages for the calendar year.

For an employee who was not a full-time employee for the entire calendar year, the employee’s Form W-2 wages are adjusted to reflect the period when the employee was offered coverage. These adjusted wages are then compared to the employee share of the premium during that period.

Rate of Pay Safe Harbor

According to the “rate of pay” safe harbor, an employer may take the hourly rate of pay for each hourly employee who is eligible to participate in the health plan as of the beginning of the plan year and multiply this rate by 130 hours per month. The employee’s monthly contribution amount is affordable if it is equal to or lower than 9.5% of the computed monthly wages (applicable hourly pay rate multiplied by 130 hours).  For salaried employees, monthly salary is used instead of hourly salary multiplied by 130.

Federal Poverty Line Safe Harbor

Under the “federal poverty line” safe harbor, an employer may also determine affordability using a federal poverty line-based test. Specifically, under this safe harbor, employer-provided coverage offered to an employee is affordable if the employee’s cost for self-only coverage under the plan does not exceed 9.5% of the federal poverty line for a single individual.

Healthcare Employer Mandate Delayed for One Year

The U.S. Treasury Department has announced that it will delay enforcement of the employer mandate (“pay or play”) requirements for one year. As a result, any penalties (also known as employer shared responsibility payments) will not apply until 2015.

This mandate requires businesses with 50 or more workers to provide health insurance coverage to employees. As a result, the administration will start enforcing the mandate in 2015, rather than January 1, 2014, in an effort to give businesses more time to prepare.

There will be additional changes tied to this delay, and the administration has stated that they will provide formal guidance within the next week.

Employee Benefit Advisors is working to understand the specifics surrounding this ruling, and will continue to provide updates through HR Advisor, our state-of-the-art human resources library which is a value added service available to our clients.

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