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 at 215.864.8511 or pinheiro@ballardspahr.com, Edward I. Leeds at 215.864.8419 or leeds@ballardspahr.com, or the Ballard Spahr attorney with whom you work.