Employers that sponsor health plans might get rebates from their group health insurers thanks to health reform, but if they do, they are required to pass the proper amount of the rebate on to employees.
Under the medical loss ratio (MLR) rule (mandated by the 2010 reform law), health insurers must spend a minimum percentage (80 percent for individual/small group market accounts and 85 percent for large group accounts) of the dollars they collect through premiums on actual medical services, and must limit the amount they spend on administrative costs, including salaries, profits and commissions.
The final rule is on public display for viewing; the official version will be published in the Dec. 7 Federal Register. It incorporates responses to public comments on the proposed rule, released in December 2010.
How companies must handle rebates they get from their insurers is described in a separate interim final rule.
In the event an insurer fails to meet the ratios, it must issue rebates directly to the plan sponsor. The plan sponsor in turn must divide the rebate up and use the portion of the rebate attributable to the amount of premium paid by subscribers “for the benefit of subscribers.” Private, non-ERISA plans must provide written assurance to its insurer that rebates will be used for the benefit of current subscribers.
For example, if subscribers paid 40 percent of the total premium, then the policyholder must use 40 percent of the rebate for subscribers’ benefit.
The interim rule requires employers to choose one of three things to do with rebate money that will be sufficiently “for the benefit of subscribers:”
- reduce employees’ portion of the annual premium for the next policy year for all subscribers covered under any group health policy offered by the plan;
- reduce employees’ portion of the annual premium for the next policy year for only those subscribers covered by the group health policy on which the rebate was based; or
- provide a cash refund only to subscribers who were covered by the group health policy on which the rebate is based.
Employers can use whichever method is easiest, the rule states. The final rule backed down from the proposed rule’s position that would have required insurers to distribute the rebates to employers and enrollees.
Employers will use rebates to reduce premiums or refund to employees enrolled during the year in which the rebate is actually paid, not the year on which the rebate was based. That obviates the need to track down former employees to refund them, the rule states.
According to this Oct. 31 GAO report, most insurers now meet the new MLR standards, so most won’t be issuing rebates.
Here’s a link to an HHS fact sheet on the final and interim-final rules.