ErisaALERT 2011-16 described the guidance regarding Medical Loss Ratio (MLR) rebates. Since that ALERT was issued the IRS has issued guidance FAQs regarding the tax treatment of the MLR rebates.
Many plan sponsors have recently received letters from their insurance companies indicating that a check will be in the mail. Insurance companies have sent letters directly to plan participants. Plan Sponsors are faced with deciding how to allocate the rebate and what to tell participants.
Plan sponsors should consider managing participant expectations regarding the amount of the Medical Loss Ratio rebate. Some plans will receive significant rebates; however they will probably be in the minority. The Kaiser Foundation, in a Focus on Health Reform newsletter issued in April 2012, reported that rebates paid to employers and workers in the small group market are expected to be $21 per enrollee on an annualized basis and $14 per enrollee in the large group market.
Plan sponsors may want to consider:
- A brief memo to participants acknowledging the rebate indicating that the allocation method is being determined in accordance with ERISA guidelines
- Providing a list of frequently asked questions; many insurance companies have already posted FAQs that could be adapted to your employee population. For example:
- Why are we getting the Medical Loss Ratio rebate?
- Will we get the Medical Loss Ratio every year?
- Does this mean that the insurance company is overcharging?
- Will I be taxed on the Medical Loss Ratio rebate?
If the Plan sponsor determines that the rebate is de minimis and the cost of issuing the checks is greater than the rebate, the next decision is what to do with rebates. Decisions regarding the allocation of the rebate should be documented and reviewed by Counsel. Never forget that ERISA is a process statute and you should document your allocation method as well as your rationale.
Note: all links are active as of the date of issuance of this ErisaALERT.
Disclaimer: This material is for the sole purpose of providing general information and does not under any circumstances constitute legal advice and should not be used as a substitute for legal advice. You should seek the advice of counsel when applying the requirements to your plan. For more information on this ErisaALERT contact us by phone at 610-524-5351 and ask for Mary Andersen or 973-994-7539 and ask for Theresa Borzelli.
