Answers to Common MLR Questions

The Medical Loss Rebate (MLR) checks issued from insurance carriers to employer groups are required to be mailed by August 1, 2012, per health care reform regulations.  As you are working on determining what part of the rebate should be paid out to employees, you may want to also include communication to employees about this process. 

Since the insurance carriers are required to send letters to all plan participants who are entitled to receive this rebate, we are sure that employees will be coming to you with questions. Below are questions and answers that we think will be common during this time.

Why am I getting a rebate on my health insurance premiums? In 2011, health care reform regulations began requiring insurance carriers (i.e. Anthem, UHC) to spend at least 80% - 85% (depending on the group’s employee size) of the premium dollars that they received in claim payments to health care providers.  If the insurance carrier paid less than this (e.g. $0.70 in claims for every $1.00 in premium received), the government requires the insurance carrier to provide a rebate to the individuals or the group that purchased the health insurance plan.

What timeframe does the rebate cover? The rebate was issued for the 2011 calendar year of January 1, 2011, through December 31, 2011.

Is the amount of the rebate taxable? Generally, if the premium for the year to which the rebate applies was paid with pre-tax dollars through a cafeteria plan (as is typically the case for employer plans), the rebate is taxable. If the rebate is used to provide a premium holiday:

• The employee must still pay taxes on the rebate.
• If the salary is increased, the employee will still pay taxes on the increased salary.  
• If the rebate is paid in cash, it is taxable cash.  
• For ERISA plans utilizing the rebate to provide benefit enhancements – if the benefits constitute health benefits – then the enhancements should be excludible from the employee’s income.

What if I was on the plan for part of the year or added/dropped a dependent to the health plan for part of the year? The rebate to employees is pro-rated based on the premium that you paid into the plan.  The amount that each employee receives in a rebate may be different based upon their premium contribution to the plan for that year.

What should I expect if I was on another employer’s plan for part of 2011? If your former employer was expected to receive a rebate for 2011 premiums paid, you will most likely receive a letter in the mail from a former insurance provider indicating that a rebate was issued.  You may or may not receive a rebate from that employer based upon that employer’s decision on how they wish to distribute rebates. 

What is the size of the rebate that I can expect? Don’t plan on paying next month’s mortgage with the rebate!  Rebates will vary depending on how much you paid in. 

Can I expect to receive a rebate every year?  In any year that the carrier does not pay out at least $0.80 to $0.85 in claims for every $1.00 received in premium, a rebate will be issued.  Because of the administrative expense to provide rebates, carriers will most likely do everything in their power not to rebate in subsequent years because they are spending their regulated, limited profit on additional administrative costs of determining rebates and generating checks.

I have talked with others and some of my friends aren’t getting a rebate.  Why is that? Rebates to companies are based on the claims to premium ratio for an entire block of companies on a particular health plan.  Some plans did not exceed the defined ratio and some companies, if they are not fully insured would have different requirements.  Suffice it to say, there are a wide variety of reasons that rebate amounts will vary.

Caravus continues to be here to help you through the health care reform maze.  Please contact your employee benefit consultant if you have questions.