The Patient Protection and Affordable Care Act’s (PPACA) minimum Medical Loss Ratio (MLR) provisions require insurers to provide rebates to group health plans purchasing insurance, if the issuer does not spend a minimum percentage of the premium on medical claims and certain quality improvement initiatives. Depending on the employer and plan type, those rebates will come in the form of a premium credit or reduction (sometimes through a so-called “premium holiday”), or lump-sum reimbursement (via cash or check). Employers are then tasked with determining the proper use of an MLR rebate while also considering the related federal tax consequences.
Under the Health Care Reform law, HMOs and insurers must now pay medical loss ratio rebates to policyholders if they do not meet MLR standards. For individuals and small groups, the standard is 80 percent. For large groups, it is 85 percent. These rebates are due by September 30 of each year and are based off of the previous year’s claims.
Medical loss ratio rebates apply only to insured plans and all funds are paid to the policyholder rather than the employees who are enrolled in the plan. The MLR provision of the Affordable Care Act applies to all licensed health insurers, including health maintenance organizations and commercial health insurers. It is important to remember that self-funded plans in which an employer or plan sponsor pays for health care benefits directly are not considered insurers. This means that employers who use self-funded plans are not subject to the MLR provision.