Dealing Out the MLR Dough
A nice chunk of change for 2011 will be dealt out by issuers in the large and small group markets. They're expected to return $386 million and $321 million, respectively, in rebates.
R.E.B.A.T.E. Find Out What It Means For MeAn issuer who doesn't meet its MLR standard must provide a rebate to the policyholder, which is typically the employer that sponsors the plan in the group health plan context. For current enrollees, issuers may provide rebates in the form of a lump-sum payment or a premium credit (reduction in the amount of premium owed).
Also, to avoid having to pay a rebate, an issuer may institute a premium holiday during an MLR reporting year if it finds that its MLR is lower than the required percentage. According to HHS, an issuer may use a premium holiday only if it's permissible under state law. Also, any issuers using premium holidays must meet certain other requirements, such as providing the holiday in a nondiscriminatory manner and refunding premium overpayments.
How an employer should handle any MLR rebate it receives from an issuer depends on the type of group health plan (an ERISA plan, a non-federal governmental group health plan or a non-ERISA, non-governmental plan) and whether the rebate is considered a plan asset.
How Should the Rebate be Used?Once an employer determines all or a portion of an MLR rebate is a plan asset, it must decide how to use the rebate for the exclusive benefit of the plans participants and beneficiaries. DOL Technical Release 2011-04 identifies the following methods for applying the rebates:
- The rebate can be distributed to participants under a reasonable, fair and objective allocation method. If the employer finds the cost of distributing shares of a rebate to former participants approximates the amount of the proceeds, the fiduciary may decide to limit rebates to current participants.
- If distributing payments to participants is not cost-effective because the amounts are small or would give rise to tax consequences to the participants, the employer may utilize the rebate for other permissible plan purposes, such as applying the rebate toward future participant premium payments or toward benefit enhancements.
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