Second Opinions

SECOND OPINIONS: What Should Plans Do with MLR Rebates?

August 7, 2012 ( - A new rule under PPACA requires health insurers to review the ratio of costs paid out for claims and quality improvement expenses to total premium dollars earned to determine a "medical loss ratio" or MLR.

By PS | August 08, 2012
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If an insurer's MLR does not meet certain minimum thresholds, PPACA requires the insurer to issue a rebate to the policyholder.  The first rounds of rebates were required to be paid out in early August for the prior plan year.  The calculations are fairly complex, but the end result for plan sponsors is that you may receive a rebate check from your insurer. 

There are specific rules as to how plan sponsors can use these funds, which will vary based on the plan type and a number of other facts.  However, we address below some basic questions we have received to get plans started. 

Do the MLR rules apply to both insured and self-funded plans?  What about grandfathered plans? 

The MLR rules only apply to insured plans.  Even if a self-funded plan uses a health insurer to administer claims, the plan will not receive an MLR notice or rebate check.  The MLR rules do apply to grandfathered plans, so these plans may receive a rebate check from their insurer.   

How will I know if my plan is supposed to receive a rebate? 

Insurers are required to notify the plan regarding whether a rebate is owed.  Plans will receive notification about the insurer's MLR regardless of whether a rebate is required to be paid.  Insurers also will notify individuals who are enrolled in coverage that an MLR rebate is being paid with respect to that policy.  As such, plans may need to be prepared to answer questions from individual participants as well. 

Are there restrictions in how plans may use this money? 

Yes.  The Department of Labor has issued Technical Release 2011-4, which explains how MLR rebates may be used for ERISA plans, where the rebate amounts may be considered "plan assets."  The Department of Health and Human Services has issued regulations that apply to governmental and church plans.  76 Fed. Reg. 76596 (Dec. 7, 2011).  These rules are complex and based on the plan's specific facts and circumstances, so plans should review them carefully and may need to consult legal counsel.  In general, rebate amounts must be distributed to participants, used to reduce future participant premiums, or be used to enhance benefits.  The guidance provides more specific direction on how to allocate the amount among participants, which participants should receive rebates (including former participants), trust issues, and how to handle terminated plans.