The medical loss ratio (MLR) rules under the ACA require health insurers to spend a minimum percentage of premium dollars on medical care and health care quality improvement, rather than administrative costs. This percentage is 85% for issuers in the large group market and 80% for issuers in the small and individual group markets.
If your insurance carrier did not meet the applicable MLR percentage for 2022, they must provide your group with a rebate by Sept. 30, 2023. These rebates may be in the form of a premium credit or a lump-sum payment.
Note: MLR rebates apply only to fully insured plans – not self-funded or excepted benefit plans.
Using MLR rebates
In general, unless you pay the entire cost of health coverage without any employee contribution, at least a portion of the rebate will be a plan asset under ERISA. For example, if you paid 60% of the premiums and employees paid 40%, you may keep 60% of the rebate. The remaining 40% of the rebate is a plan asset. Any rebate amount that qualifies as a plan asset must be used for the exclusive benefit of the plan’s participants and beneficiaries.
You can satisfy ERISA’s exclusive benefit requirement by distributing the plan asset portion of the rebate to participants under a reasonable, fair, and objective allocation method. If distributing payments to participants is not feasible, you may use this portion of the rebate for other permissible plan purposes, such as applying the rebate toward future participant premium payments or benefit enhancements. Also, to avoid the requirement to hold plan assets in trust, you should use any plan asset portion of the rebate within three months of its receipt.
