Since the Patient Protection and Affordable Care Act (PPACA) has been upheld, business owners and human resource professionals have been very curious about the effect this will have on their organization. In the State of Massachusetts, many provisions the PPACA requires have already been enforced. One provision that many are unaware of—is Medical Loss Ratio (MLR) Reimbursement checks that carriers are issuing to organizations. As a result of the growing number of questions that we have received from our clients—we wanted to communicate the reasons carriers are now issuing reimbursements and the compliance regulations associated with the MLR refunds that you may receive.
The MLR provision requires health insurance companies to spend a certain percentage of the premium dollars they collect on medical expenses. If carriers do not meet this requirement, they will then send customers a rebate check for the difference between the required percentage and the actual amount spent. Employer-sponsored health plan premiums are paid with pre-tax dollars, which means that the MLR rebate checks are paid in pre-tax dollars as well. Thus, when an employer receives a MLR rebate, they are faced with a dilemma as to how they apportion the funds. The funds are to be shared between the employer and the employee as dictated by the percentages of premiums being paid by each party.
To clarify further, here is an example: An organization receives a MLR rebate check in the amount of $20,000. Prior to receipt of this check, the company’s employees will receive a letter in the mail stating that they are going to receive a rebate due to under-utilization of their health insurance premiums, and to talk to their employer. Since the employer pays for 50% of all health insurance premiums, only $10,000 of the MLR rebate check will go to the employees who made individual contribution amounts and the remainder will go to the employer.
The employer can choose a variety of options to distribute the benefit to participating employees, and the following are a few examples as to how these dollars could be utilized
- The most popular option is to give the employees a premium discount equivalent to the amount of the refund.
- If enough funds are available, fund a whole month of health insurance premiums for your employees.
- The employer could host a flu-shot clinic prior to flu-season.
- They could also host a wellness-fair, where employees could gain exercise and nutritional counseling with personal trainers or nutritionists.
- Start a wellness initiative with the premium dollars that are rebated, such as funding a portion of a corporate gym membership.
The guiding principal with this practice is that the refund amount has to be utilized in such a way that it is directly benefitting the employees participating in the health plan, while at the same time not discriminating against any employees in the process.
Regardless of how the funds are dispersed, an employer must make sure that the employees benefit directly from the rebate while at the same time utilizing all of the funds to which the employees are entitled. You should consider speaking to your broker about how to correctly document and disseminate the funds to avoid compliance penalties.