Handling Rebates Arising from the Medical Loss Ratio Requirement
Fully Insured Plans
The PPACA requires insurance issuers to provide an annual rebate to plan participants if the amount of the premium expended on reimbursement for clinical services and quality improvement activities divided by the premium paid in is less than the applicable minimum standard (Medical Loss Ratio or “MLR”). This ratio is generally 85 percent in the large group market and 80 percent in the small group market.
Insurers are required to make the first round of rebates by August 2012 based on their 2011 MLR. The regulations direct the insurance issuer to distribute the entire rebate to the group policyholder (typically the employer) and the group policyholder is required to use the portion of rebates attributable to the amount of premium paid by subscribers for the benefit of subscribers, ensuring that enrollees in such plans receive the benefit of rebates. If the rebates are provided in the form of a “premium holiday” in accordance with the MLR regulations (and thus used for payment of future premiums due for group health plan coverage), they would not be taxable to enrollees.
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