The ACA requires fully insured group health plans to spend a minimum percentage of premium dollars on members’ health care expenses and services. This requirement is known as a plan’s Medical Loss Ratio (MLR). If an insurance issuer fails to meet the applicable MLR standard in any given year, the issuer is required to provide a rebate to its customers.
In the Small Group market, the law requires an MLR of 80%. That is, at least 80% of premium dollars must be spent on health care-related expenses, and no more than 20% of premium dollars may be spent on administrative expenses. In the Large Group market, the MLR rises to 85%. MLR requirements do not apply to self-funded plans.
Any year a fully-insured health plan does not meet its MLR requirements, the health insurance carrier has until the end of September of the following year to distribute MLR rebate funds. Employers have several options when it comes to utilizing or dispersing the MLR rebate funds, but the law gives them just 90 days to take action.
The Department of Labor provides three options for distributing rebates:
- Reduce subscribers’ portions of the annual premium for the subsequent policy year for all subscribers covered under any group health policy offered by the plan.
- Reduce subscribers’ portions of the annual premium for the subsequent policy year for only those subscribers covered by the health policy on which the rebate is based.
- Provide a cash refund only to subscribers who were covered under the group health policy on which the rebate is based.
The law does not require employers to track down former employees for MLR rebates, but COBRA participants must be included in any premium rebates, if applicable.
Refer to the Word & Brown newsroom and ACA calculator references for additional information and detail about MLR rebates.