This blog post was authored by Heather DeBlanc
Did your health insurance company send your agency a check? Under the Affordable Care Act (“ACA”), health insurance companies must issue employer rebates by August 1st each year if they failed to spend a certain percentage of your agency’s premiums toward medical care or quality improvement. This is called the Medical Loss Ratio rebate. Now you must determine what to do with the rebate.
Counties, cities, school districts, community college districts, special districts and other local government employers must use the portion of the rebate attributable to the amount of premiums paid (including both current and former participant’s premium contributions) for the benefit of current participants. The rebate may be used to benefit employees enrolled during the year in which the rebate is paid, even if those employees were not previously employed during the prior reporting year.
Public employers have the following options when allocating the rebate:
- Reduce the premiums for the next policy year by allocating it among all participants covered under any plan option at time the rebate is received;
- Reduce the premiums for the next policy year by allocating it among only the participants covered under the policy to which the rebate is attributable at the time the rebate is received; or
- Issue a cash refund to participants covered under the policy to which the rebate is attributable at the time the rebate is received (divided according to each participant’s actual contributions to the premium; or in a manner that reasonably reflects each participant’s contributions to the premium).
Note: If you are an employer with an ERISA plan, different rules apply.
For More Information
Additional information is available at http://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Medical-Loss-Ratio.html. The IRS released an FAQ addressing the tax treatment of rebates, which can be found at http://www.irs.gov/uac/Medical-Loss-Ratio-(MLR)-FAQs