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.)