One of the provisions in the recent healthcare reform law is the
medical loss ratio (MLR) that requires insurance companies to spend
a certain proportion of their income on healthcare benefits for
their customers. If an insurance company does not meet its MLR
standard, it is required to issue a rebate to its policyholders.
(The MLR standards do not apply to self-insured medical plans.) In
2011, the Labor Department issued a Technical Release, which
provided guidance on how sponsors of group health plans covered by
ERISA should handle such rebates.
The MLR Requirements
The Affordable Care Act requires insurance companies in the
large-group market (employers with at least 100 employees) to spend
at least 85% of premiums on medical benefits and
quality-improvement activities. Insurance companies in the
small-group and individual markets must spend at least 80% of
Beginning this summer, insurance companies will be required to
report 2011 MLR data to each state in which they do business. They
will report aggregate premium, claims experience, and
quality-improvement expenditures for their large-group, small-group
and individual markets in each state. Insurers will be calculating
MLR based on their entire business in the large-group or
small-group market, not based on a particular group health
In August 2012, insurance companies that did not meet the MLR
standards in 2011 will be required to provide a rebate to their
customers. Health and Human Services (HHS) has directed insurers in
the group market to provide rebates to the group policyholder and
to include protections designed to benefit plan participants.
Details Of The Rule
When rebates are paid to a group policyholder that is an ERISA
plan sponsor, the rebates may be plan assets, and thus subject to
rules under Title I of ERISA relating to fiduciary responsibilities
and prohibited transactions. The DOL's Technical Release
provides guidance regarding the duties of employers, plan sponsors,
and other fiduciaries' responsibilities for decisions related
to the MLR rebates they receive from insurance companies.
If the plan or its trust is the policyholder, then the policy
and the rebate are definitely plan assets. When a rebate is a plan
asset, fiduciaries must act prudently, solely in the interest of
the plan participants, and in accordance with the terms of the plan
document when handling the assets. If distributing payments to any
participant is not cost effective, the fiduciary may apply the
rebate toward future participant premium payments or toward benefit
Insurance companies must provide notices of rebates to current
group health plan participants and group policyholders. The notice
must include general information about the MLR standard, the
issuer's actual MLR, and the rebate. To prepare for the
possibility of receiving rebates, plan sponsors with insured group
health plans should review their plan documents now to determine
whether they address payment of rebates.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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As insurance premiums rise, and more companies self-insure, "wellness programs" have emerged to merge the interests of employees in being well and employers in keeping them well and away from the medical establishment.