In the next few weeks, employers with insured group health
plans, or insured options (such as an insured HMO) in an otherwise
self-funded plan, may receive rebate checks from their insurers.
Employers receiving these checks will need to consider how to apply
the amounts in a manner that complies with applicable law.
An insurer's obligation to provide rebates depends on its
performance under the medical loss ratio (MLR) requirements of the
Affordable Care Act. Each year, a health insurer must use a
specified percentage of the premiums it collects to pay benefits or
finance certain health improvement activities. If it fails to meet
this percentage, the insurer must refund a portion of the premiums
to policyholders in the form of premium reductions or rebate
checks. For group health plans, the policyholder is usually (but
not always) the employer that sponsors the plan.
The U.S. Department of Health and Human Services, the U.S.
Department of Labor, and the Internal Revenue Service all have
issued guidance on how policyholders need to apply the rebates. A
plan that is subject to ERISA needs to assess whether rebate
amounts are plan assets that can be used only for plan purposes,
whether any portion of the money needs to be allocated specifically
for the benefit of employees participating in the plan, how to make
that allocation, and what the tax consequences of an allocation
might be. In general, policyholders will be required to apply the
rebates to appropriate uses within three months. The rules differ
somewhat for plans that are not governed by ERISA, such as those
maintained by state and municipal governments and church plans.
Within the limits imposed by the regulations and other guidance,
employers retain a meaningful level of flexibility with respect to
the rebates they receive. Depending on how a group health plan is
structured, an employer may be able to use the rebates it receives
(or a significant portion of those rebates) to pay its own share of
health insurance premiums.
As the federal health care reform effort gained steam, Ballard
Spahr attorneys launched the Health Care Reform Initiative to
monitor and analyze legislative developments. With federal health
care reform now a reality, our attorneys are assisting health care
entities and employers in understanding the relevant changes and
planning for the future. If you have questions regarding MLR rebate
checks or other implications of the Affordable Care Act, contact
Brian M. Pinheiro, Edward I., or the Ballard Spahr attorney with
whom you work.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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