Rebates Related to Medical Loss Ratio
January 26, 2012
In new regulations released by the U.S. Department of Health and Human Services (HHS) at the end of 2011, the federal government established new guidelines for how rebates related to medical loss ratio (MLR) results will be handled.
Previous HHS interim regulations required that group policy subscribers receive premium rebates if health insurers failed to meet or exceed MLR percentage thresholds established by group size.
Under the provisions of the Affordable Care Act, health insurance companies are required to spend a certain percentage of premium dollars on medical claims and activities that improve health care quality.
MRL Calculations
The MLR is calculated by insurance legal entity, state of group contract issuance and group size (individual, small group, large group) for each state in which an insurer writes fully insured business. Based on those criteria, employers will be placed in an aggregation set to determine eligibility for rebates.
MLR percentages are calculated on a calendar year basis. For 2011, which is the first rebate period, UnitedHealthcare conducted an employer survey of group size to assist in the placement of groups in the correct aggregation sets. Calculations utilizing 2011 financial data will identify which aggregation sets qualify for rebates.
Rules Now Vary on Plan Type
Rules regarding the issuance of rebates now vary, depending upon whether a group is a plan governed by ERISA, a government plan or neither. In most circumstances, an issuer must provide a rebate to each applicable group policyholder if the issuer's relevant MLR does not meet or exceed the minimum MLR percentage required during the MLR reporting year.
Rebate Conditions
In very limited circumstances, rebates will be required to be sent to group policy subscribers instead of the group policyholder. For policies in the individual market, rebates will be paid directly to individual policyholders. All group and individual policyholder rebates must be paid prior to Aug. 1, 2012.
Most group policyholders have the obligation to use a portion of the rebate to benefit their subscribers. For example, plans governed by ERISA must follow U.S. Department of Labor requirements for handling rebates that qualify as a "plan asset."
For more information, see the MLR flyer available from the United for Reform Resource Center.
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