Medical Loss Ratio Rebates not a Business Windfall Cautions Benefits Provider

Many employers will have already received rebates from their health insurance carriers by August 1. The rebates are the result of a mandate of the Affordable Care Act but should not be considered a business windfall and should be handled carefully in order to avoid legal mistakes. The provision sets a minimum medical loss ratio whereas if an insurer fails to spend a specified minimum percentage of premiums the difference must be rebated to employers by the August 1 deadline. Those rebates are expected to near $1.3 billion though many employers are not well educated on the usage restrictions of those funds, says president of benefits JA Benefits, Doug Johnson.

“You can’t just put that check into your general business bank account,” he cautioned. “These are rebates on your health insurance premiums, so they need to go back to whoever paid the premiums originally. That means that if your employees paid some portion of their premiums, they need to receive the same proportion of the rebate.”

Additionally, portions of the rebates can be applied to premium payments in the next cycle. MLR rebates are subject to tax liability if premiums were paid pre-tax so employees will be taxed on the amount of the rebate.

“For the majority of employers, your best bet is going to be distributing your employees’ portion of the rebates to them as a one-time bonus,” Johnson said. “This way you can withhold taxes as usual instead of complicating their tax liability. “It could turn into a big deal if you don’t treat these rebates correctly. Misappropriation of funds is a serious legal matter regardless of the size of the rebate, which may be quite small for some companies. Don’t play a guessing game with these checks. We’re happy to explain the process to anyone who has questions.”