In the past couple of weeks, I’ve received notices from health insurance carriers outlining their plans to distribute the 2013 medical loss ratio (MLR) rebates for insured policies. It’s probably been several months since you’ve thought about MLR rebates, so let’s do a quick refresh. The ACA regulates the amount of money that health insurers are required to spend on claims — at least 85% of the insured premiums they receive from large employers and 80% of premiums from small group or individual policies. Insurers that spent less than required have until August 1 to return the difference. At which point employers have three months to distribute the money.
According to a CMS report, this provision of the ACA has resulted in billions of dollars in consumer savings, an increase in enrollees receiving upfront value on their premiums, and a reduction in insurance company overhead expense. For the 2012 plan year:
- $500 million in rebates was paid to 8.5 million enrollees in 2013.
- The average rebate was approximately $100 per family.
- 77.8 million consumers saved $3.4 billion upfront on premiums.
- Insurance company administrative costs as a percent of premium decreased from 9.4% to 9.1% across all markets.
If you’ve received a notice — your employees may have received one, too — that rebates are coming your way, it’s time to dust off your MLR file and review what you’ve done in the past. As in prior years, you’ll need to assess the current challenges and costs of the options for handling the rebates. Review your plan documents and consider whether some or all of the rebate must be shared with participants. If so, assess approaches, including estimating the cost to issue checks and confirming whether your insurer would apply the rebate to offset next year’s premiums.
In the coming weeks you’ll need to determine:
- Who shares the rebate — Review your plan documents and the employer/employee cost-sharing arrangement to determine if any portion of the rebate is a plan asset that must benefit participants.
- How the rebate is allocated — For the portion that’s a plan asset, assess whether rebates will benefit current participants, former participants, or both.
- The form of the rebate — Remember that cash rebates to participants may be taxable, and there is a cost to issuing checks that should be factored in to the evaluation. You may want to consider reducing future premiums or offering a payroll deduction holiday so the rebate doesn’t become taxable income for your employees.
- When it should be distributed — Rebates issued in cash or used to reduce future premium payments generally must be distributed within three months of the employer’s receipt.
It’s anticipated that the amount of the rebates will decline in the coming years as insurers continue to reduce their overhead expenses. It will be interesting to see how the 2013 plan year figures compare to those from 2012.