Employers need to take notice of a provision of the Patient Protection and Affordable Care Act
(PPACA) which may result in their insurance carriers issuing rebates to participants. Employers should plan ahead on how to handle employee questions and administer the rebates.
PPACA requires insurance carriers to dedicate 80% of their premium income to healthcare claims and quality improvement, with only 20% or less allowed for administrative expenses. Large group plans (generally more than 50 participants) must comply with the Medical Loss Ratio (MLR) which requires 85% of the premium income to be used for claims and quality improvement with only 15% allowed for administrative expenses. Self-insured health plans do not have compliance requirements.
Insurance carriers that have greater administrative expenditures than what is allowed are required to issue rebates. Because most employers pay at least a portion of the healthcare premiums, each employer will need to determine if the rebate should be shared with employees and how. For instance, employers can offset future employee’s healthcare premium costs by the rebate amount, or issue checks to employees. Other considerations to note:
- Employers have only 90 days from receipt of a check to issue payments to plan participants.
- Employers may use the 2011 refunds for employees in a health plan in both 2011 and 2012 or only for those employees in a health plan in 2012. If using the refund for 2012 only, the employer will need to be prepared to respond to enquiries from former employees.
- Rebates are considered wages for the purposes of withholding taxes and compensation under most retirement plans.
- Rebate checks that are treated as “plan assets” are subject to ERISA fiduciary rules and therefore should be properly documented.