Carriers Are Going To Start Rebating Employer Health Insurance Plans - No, You Can't Pocket That Money

Because of the tremendous downturn in healthcare spending during March and April, many carriers are compelled under PPACA's Medical Loss Ratio rules to rebate some of those savings back to your employer plans.  As a reminder, unless the employer pays for one-hundred percent of all medical benefits (with no employee contributions) the employer has to share those savings with employees commensurate with the amount of premium the employees paid or by using the money to benefit the health plan.   

Here is what Healthcare Finance is reporting:   

... Health plans are mandated to spend at least 80% [85% in the large-group market] of their revenues on medical care. When they make more than that, they have to give money back to the purchasers.

Insurers are doing this now, rather than later, according to the Advisory Board's practice manager Rachel Sokol, who spoke during the company's weekly meeting on the impact of COVID-19 to payers.

 

Insurers want to create immediate value for members, instead of waiting for 2021, she said.

"That's why we're seeing the premium discounts now," Sokol said.

Among those insurers refunding money, UnitedHealthcare said it would provide more than $1.5 billion in initial assistance, including customer premium credits, because its members have been unable to access routine or planned care due to the COVID-19 pandemic. ...

Who Gets What

The portion of the rebate that must be treated as a plan asset depends on who paid the insurance premiums. For example:

þ  If the premiums were paid entirely out of trust assets, the entire rebate amount is a plan asset;

þ  If the employer paid 100 percent of the premiums, the rebate is not a plan asset and the employer can retain the entire rebate amount;

þ  If participants paid 100 percent of the premiums, the entire rebate amount is a plan asset; and

þ  If the employer and participants each paid a fixed percentage of the premiums, the percentage of the rebate equal to the percentage of the cost paid by participants is a plan asset.

Under the DOL’s guidance, employers are generally prohibited from retaining a rebate amount greater than the total amount of premiums and other plan expenses paid by the employer.

Using Plan Asset Rebates

Once an employer determines that all or a portion of an MLR rebate is a plan asset, it must decide how to use the rebate for the exclusive benefit of the plan’s participants and beneficiaries. Dept. of Labor Technical Release No. 2011-04 identifies the following methods for applying the rebates:

·        The rebate can be distributed to participants under a reasonable, fair and objective allocation method.

·        If distributing payments to participants is not cost-effective because the amounts are small or would cause tax consequences for the participants, the employer may use the rebate for other permissible plan purposes, such as applying it toward future participant premium payments or benefit enhancements.

If a plan provides benefits under multiple policies, the employer must make sure to allocate the rebate for a particular policy only to the participants who were covered by that policy. According to the DOL, using a rebate generated by one plan to benefit another plan’s participants would be a breach of fiduciary duty.