Medical Loss Ratio Rebates

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The Medical Loss Ratio (MLR) provision of the Affordable Care Act required insurance carriers to issue rebates to affected employers and employees for the previous plan year by September 30.

The MLR provision, which became effective in 2011, required a minimum percent of premium payments collected by health insurance carriers to apply toward medical claims and/or quality improvement.

Small group* and individual plans must have had 80 percent of premiums apply toward payment of claims and/or quality improvement. Large group health plans** must have applied at least 85 percent of premiums toward the payment of claims and/or quality improvement costs. The remaining percent could have been applied to administrative and marketing expenses and profits.

Carriers who did not meet these thresholds were required to send a rebate of the excess premium payments to either the affected businesses or policyholders. The rebates for a previous plan year are to be paid no later than September 30 of the current year.

Rebates were calculated based on aggregate market data for small and large groups in each state, not a particular group health plan’s experience.

The following outlines how the rebates were distributed:

  • If the employer paid 100 percent of the premium, the rebate was paid to the employer. If the participants paid 100 percent of the premiums, the rebate was paid to the participants. If the employer and participants each paid part of the premiums, the rebate was reimbursed to each based on the percentage of the contribution.
  • If either the employer or the participants paid a fixed amount toward the premium, the rebate could not exceed the fixed amount.
  • If the rebate was considered plan assets, it could have been distributed to both current and former employees. However, if the distribution to former employees was minimal and the cost of distributing the funds was approximately the amount of the proceeds, the plan sponsor could have allocated all proceeds to current participants.
  • If distributing the rebate was not cost-effective, the plan sponsor could have used the rebate to fund future participant premiums, enrich benefits, or any other permissible purpose.

Health insurance plans exempt from the provision included:

  • Self-Funded
  • Fixed Indemnity
  • Stand-Alone Dental
  • Vision
  • Long-Term Disability
  • Mini-Med

Paychex Solutions for MLR Rebates

We will work with our clients who receive notice of a coming medical loss ratio rebate to help ensure prompt and appropriate handling.

* Small group health plans are for employers with up to 50 or 100 employees, depending on the state.

** Large group health plans are for employers with over 50 or 100 participants, depending on the state.