So you’ve just received a mysterious check from your health insurance carrier, with likely little to no explanation or accounting.
First, if you’re surprised that you’ve received a check from your insurance company, don’t be. In essence, you’re benefiting from a health care reform law that requires insurance companies to pay rebates under certain circumstances. You can read more about this here.
This is your Medical Loss Ratio (MLR) rebate check. You’ve got three months to do something with it—so what should you do now?
Here’s a practical action plan to help you get the most out of these funds.
Before you read further, it’s possible that your group health Plan Document/Summary Plan Description includes language that allows the employer to retain all amounts, even the amounts attributable to the plan participants. Therefore, please check your group health plan documents first for this language.
The information below assumes your group health plan documents do not allow for your employer to retain the employees’ share of the rebate.
- Slice and Dice It Part 1: Plans
The first step is to determine which plans and which employees the rebate applies to.
Your carrier might provide you with some detailed information, or more likely, they won’t. In the latter case, you can still look to clues that may be available.
For instance, in 2019 Blue Shield of California indicated that only small company plans offered through one of their legal entities were affected—ask your broker to supply you a list of the plans housed under that insurance carrier entity, if available.
Example: If only plans regulated by CA’s Department of Managed Health Care are affected, rebates may only apply to HMO plans.
- Slice and Dice It Part 2: Contributions
Step 2 should be to look at your contributions as an employer toward the plans and employees, as determined in step 1.
Do you pay 100 percent toward both employee and dependents? Great—stop reading. You’re done. Go deposit that rebate check in your company’s checking account.
What if you’re paying 80 percent? If that’s the case, you can keep at least 80 percent. Remember MLR rebates are designed to go back to the premium payer(s).
So what if the portion of the premium attributable to the employee is tiny?
- De Minimis?
So after steps 1 and 2, how much money per employee are we talking? The IRS allows employers to treat these smaller amounts—sometimes called de Minimis (“about minimal things”) differently. While the employer can’t keep these smaller amounts that are attributable to the employees’ share of the premium, the employer doesn’t have to cut a check to a participant for this amount.
Instead, the employer can put the money back in the pot for other employees to share.
How small? It really depends on your prudential judgment—seriously. There isn’t a legal, hard-and-fast dollar amount defined, but examples abound in the $10 and $20 range.
The majority of MLR rebates I’ve seen end up in this category.
- Reinvest in Contributions
The law allows employers to use the funds received to beef up their contributions toward current employees—if your rebate isn’t covered by numbers 1-3 above and you must pay out, we highly recommend considering this option.
It can take many forms, but a common path is giving employees a “premium holiday,” boosting your contributions for a month or so.
Example: You normally contribute $400 per month toward a plan whose gross premium is $600. If you’ve determined that the portion of the rebate check attributable to employees (aka “plan assets”) is $100 each, you could go ahead and contribute $500 for the next month only.
- Distribute to Employees
You also have the choice to distribute a check to employees. But let’s think about that for a second. Presumably, you have a premium only plan (aka section 125 cafeteria plan) that allows for pre-tax contributions from the employee’s paycheck.
Now, you’re considering distributing after-tax plan assets; so any funds you distribute will need to be adjusted accordingly because it represents income to the employee. If you can, reconsider number 4 above.
- The Aftermath
The law requires carriers to send letters to employees’ home addresses letting them know you will be getting an MLR rebate check, even if you pay 100 percent of the premium—and even if the amount is de minimis.
Hopefully this article will help prepare you to have those fun conversations.