Originally published: May 11, 2020
- What Rebate?
Some businesses have received notices from their group health plan insurance carrier (e.g. the Anthems, UnitedHealthcares, and Humanas of the world) informing them that they will be receiving a rebate from the insurance premiums that the employer has paid. Insurance carriers are couching this rebate as resulting from the current COVID-19 crisis: when premiums for the current year were established by the insurance carriers’ underwriters last year, they did not factor in a significant reduction in both maintenance doctor’s visits (annual checkups) and elective procedures that have resulted from people staying at home during this pandemic. As a result, many employers whose employees have not been heavily hit by COVID-19 have essentially overpaid for their group insurance plan. What insurance carriers are not necessarily communicating is whether or not this surplus of premiums is being returned as a result of their need to comply with the Affordable Care Act’s Medical Loss Ratio rules.
- What is MLR and why do I care?
The Affordable Care Act (ACA) requires health insurance to spend at least 80% of premium dollars on actual medical care. This ratio, known as the Medical Loss Ratio (MLR), is designed to keep health insurance premiums down by prohibiting insurance companies from gauging enrollees. If the MLR shows that the insurance carrier did not spend at least 80% of its revenues on enrollee health care costs, the insurance carrier is required to issue cash rebates to its enrollees (usually the employers who have offered a group health plan to their employees). As a business owner who has contributed significant dollars to the insurance carrier in order to offer its employees health insurance, and for the employees who similarly have to contribute premium dollars themselves, the interest in these rebates should be self-explanatory.
- What should employers do with these rebates?
Employers who receive an MLR rebate have an obligation to share the rebate with their employees. However, there are some nuances to the “how” and “who” of an MLR rebate. According to the U.S. Department of Labor’s Publication No. 2011-04, the employer’s responsibility for distributing the rebate to participants is dependent on who paid for the insurance coverage. If the employer paid the entire cost of the insurance coverage, then no part of the rebate would be attributable to employee contributions, and therefore no rebate would need to be shared with employees. Conversely, if employees paid the entire cost of their insurance coverage, then the entire amount of the rebate would be attributable to the employee contributions and the employees should receive the rebate themselves. It then follows that if the employees and employer each paid a fixed percentage of the cost, a rebate would be due to the employees and employer based on their pro rata contributions.
This, however, is not the end of the story. The DOL guidance provides employers with the following three options for how to distribute the MLR rebates:
- The employer can reduce the employee’s portion of subsequent premiums for employee currently enrolled in the plan;
- The employer can reduce the employee’s portion of subsequent premiums for employees who the rebate was based on and who are still on the plan (note: potential differences in employee contribution as a result of this rebate will not violate ACA non-discrimination rules); or
- The employer can provide a direct cash refund to those current employees and current COBRA enrollees who were covered by the group health policy on which the rebate was based.
These options were designed to provide employers with some flexibility and to potentially simplify the employer’s administrative burden of chasing down former employees.
Employers should also keep in mind that some insurance carriers are offering credits that group insurance plan enrollees (i.e. employees) can use for the purposes of receiving COVID-related services such as testing and treatments. These credits are different from the MLR rebates and need not be allocated to past and present enrollees as described herein. However, these credits may ultimately interact with MLR rebates by permitting the insurance carriers to allocate revenues to medical “expenses” thereby satisfying the MLR 80/20 ratio. If the credits are not used, one would assume that these additional funds would eventually count against the MLR 80/20 ratio and a rebate would be forthcoming, but perhaps delayed.
Regardless, employers who receive an MLR rebate are reminded that they should consult with their legal counsel, accountants, and payroll personnel to determine how best to comply with the DOL’s guidance in light of their own business needs and resources. The attorneys of Neider & Boucher, S.C. are available to help.
This article was authored by Attorney Joe Camilli. Attorney Camilli is a graduate of the Hamline University School of Law and practices business and employment law as part of Neider & Boucher, S.C.’s business team. Attorney Camilli was recognized as a 2019 Up and Coming Lawyer by the Wisconsin Law Journal and is co-chair of the firm’s COVID-19 response team.
The guidance provided above is general in nature and readers are encouraged to reach out to Neider & Boucher, S.C., or to their own legal counsel to determine the applicability of these issues to their own personal and/or business needs.