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Employers with insured group health plans may receive a medical loss ratio (MLR) rebate from their issuers if the applicable percentage for 2023 is not met. Rebates, in the form of premium credits or lump-sum payments, must be provided to plan sponsors by September 30, 2024.
Any rebate amount that qualifies as a plan asset under ERISA must be used for the exclusive benefit of the plan participants and beneficiaries within three months to comply with ERISA guidelines. Employers should also be prepared to address employee inquiries about how the rebate is allocated.
MLR Rules
Health insurance issuers must allocate a minimum percentage of premium dollars to medical care and quality improvement, with thresholds of 85% for large group markets and 80% for small and individual markets. States can set higher standards than the federal thresholds.
Issuers must report premium spending to the federal government by July 31st of the following year. Those not meeting the MLR standard must provide rebates by September 30th, along with an explanation to plan sponsors and participants explaining the rebate and how it was calculated.
Using MLR Rebates
Most employer-sponsored health plans in the private sector fall under ERISA regulations. Employers with ERISA plans should not assume they can keep an MLR rebate. Generally, if an employer doesn't cover the entire health cost without employee contributions, a portion of the rebate becomes an ERISA plan asset. This rebate must be used solely for the plan's participants and beneficiaries.
Employers can distribute the plan asset portion of the rebate to participants following a fair allocation method. If direct payments are not possible, the rebate can be used for other plan purposes like future premium payments or benefit enhancements. To avoid holding plan assets in trust, employers should utilize the rebate within three months of receipt. Download the bulletin for more details.
Additional Resources
Checklist: Using Medical Loss Ratio Rebates
National Insurance Services is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Readers are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the readers’ business activities.
