Medical Loss Ratio (MLR) – Rebate Checks - Capstone Brokerage

By: Robert Pusateri, Capstone Brokerage Benefits Consultant, September 5, 2017

Health Plan of Nevada & Sierra Health and Life have begun mailing Medical Loss Ratio (MLR) rebate checks to their small group health insurance plan sponsors. The notice indicated they would be mailing checks out over the next few weeks along with all the other health insurers. These checks are for calendar year 2016 and are required to be completed by September 30th.

“Now that I’ve got it, what do I do with it?” is a very familiar question.

Insurance carriers are sending out Medical Loss Ratio (MLR) rebate checks for the 2016 plan year. Health Insurance carriers can spend premium dollars on a number of things, including their own overhead (marketing, administrative costs, commissions, etc.). MLR is a system set by the Affordable Care Act to encourage carriers to use your company’s insurance premium dollars in specific, beneficial ways. Large Group Employers, MLR must be at least 85%/15%, for Small Group Employers, it’s 80%/20%. If carriers fail to allocate these percentages of your premium dollars to medical claims and activities that improve the quality of care, they must send your business an MLR rebate check.

So, now what to do with the check in your hand? Let’s look at ABC Company, a company that serves retail cakes and cookies. In 2016, ABC Company paid their insurance carrier $240,000 ($20,000 monthly) in annual group medical insurance premiums. ABC Company paid 50% or $120,000, and the employees paid 50% or $120,000. Let’s assume the MLR rebate check from the carrier is for $12,000. So, the business keeps 50% (or $6,000) and distributes 50% (or $6,000) to the employees. The ACA gives employers leeway on how to distribute the MLR rebate check, as long as it’s “reasonable, fair, and objective.” You don’t have to consider how much each employee paid in premiums or even whether you pay the actual people who were on the plan during the rebated year. You also don’t have to track down your former employees either. You can distribute the MLR rebate to your current full-time staff. ABC Company has 45 full-time active employees. As mentioned previously, the business kept 50% of the MLR check. To distribute the remaining 50%, the business divided $6,000 by 45, and each employee received $133.33.

Employers who receive an MLR rebate check have 90 days to determine how they wish to distribute it. Insurance carriers often notify both the business and policyholders of their intent to send rebates. This may generate questions from employees, so it’s a good idea to communicate how you intend to distribute a rebate as soon as you know. We do recommend indicating the amount, so that employees don’t think it is substantial.

Here are two acceptable ways to take care of the MLR check:

• Add the $133.33 to each employee’s regular paycheck (it will become taxable income.)

• Declare the rebate a premium against current employee premium payroll deductions. (Do this by reducing the amount of payroll deductions for premiums by $133.33 for one pay period.)

As a result, in many situations the most fair, reasonable and objective method of allocation may be as easy as dividing the rebate evenly over all current participants in the plan, even if those participants made different employee contributions to the plan. For More information on this topic contact a knowledgeable Broker.