What is a Medical Loss Ratio (MLR) Rebate?

As part of the Affordable Care Act enacted in 2010, health insurance issuers are required to spend a minimum percentage of their premium dollars on medical care and health care quality improvement. This percentage is referred to as the Medical Loss Ratio (MLR). The MLR requirement became effective in 2011 with June 1, 2012 reporting due date. If an issuer does not meet the MLR standard, they are required to provide a rebate to the consumers. The rebates, which are required to be paid by August 1, 2012, are based on aggregated market data in each State and not upon a particular group health plan’s experience.

If you have received an MLR rebate, you need to be aware that as an employer, what you do with the rebate depends on your group health plan. You should review your plan document to determine if the plan addresses rebates. If the plan does not address rebates, the DOL has issued guidance (Technical Release 2011-04) stating that the rebate should be split between employer and employees based on who originally paid the premiums.

Additionally, the taxation of the rebate depends on whether the premiums were paid with pre-tax or after-tax dollars. The IRS has added a Q&A section on their website that discusses the basic differences. The Q&A can be found at http://www.irs.gov/newsroom/article/0,,id=256167,00.html.

Anders can assist you with evaluating the steps that need to be taken in regards to the MLR Rebate.