[authors: James Rough and Scott J. Richardson, Esq.]

Many Arizona companies recently received a rebate check from their health insurance carrier.  While one of the lesser publicized aspects of the recent health care reform, for some of 10,000 Arizona employers - and their employees[i] - this may appear as a windfall in aggregate but may be an administrative burden for employers.  There are restrictions on distribution of the rebate and little explicit guidance is provided by the Department of Labor to employers.  In this article, healthcare expert James Rough from Navigant Consulting Inc. addresses issues associated with the health insurance rebates paid in August to companies under the Affordable Care Act.

What is the new 80/20 requirement under the Affordable Care Act?

One of the many provisions recently upheld by the Supreme Court in the Patient Protection and Affordable Care Act (ACA) requires health insurance issuers to maintain a minimum medical loss ratio (MLR).  This generally requires insurance carriers to spend at least 80% of health insurance premiums on medical care and quality.  If the Insurer does not meet that threshold they are required to rebate the difference to the policyholder.  By August 1, 2012, health insurance issuers sent letters and rebates, if owed, to all Group Plan policyholders. Policyholders are typically employers in the group markets, who then bear the burden of determining how much of the rebate to distribute to participants in the plan (employees). The rebates were distributed as checks or direct deposits to the policyholder or reductions of the August 2012 Premium payment due to the Insurer.[ii] Employers have several choices in determining how to calculate and distribute the potential rebates.

Why didn't I receive a payment?

MLR calculations performed by your health insurance issuer are quantified separately by state and size of market, among other factors. In most states your insurance issuer will owe a rebate if the MLR is less than:

• 80% in the individual market;
• 80% in the small group market; and
• 85% percent in the large group market.[iii]

If you are covered by a fully insured plan, you should have received a notice from your health insurance issuer informing you that your plan either met or did not meet the minimum MLR requirement. Navigant estimates that over 570,000 of these letters were sent out to individuals in Arizona alone. Of these, over 320,000 letters explained a rebate was due; including what percentage of the premium was due as a rebate.[iv] Nationwide, approximately 60% of people in the group markets are in self-insured plans, which are not covered under the new MLR requirement, and therefore will not receive rebates or notices.  [v]

How many companies in Arizona received payments?

Navigant estimates that Arizona Insurers reported rebates of $29.6 million, the ninth highest amount of rebates in the nation. The distribution is as follows:

• $12.9 million in the Arizona individual market
• $8.9 million in the Arizona small group market
• $7.8 million in the Arizona large group market.[vi]

The $16.7 million of rebates in group markets were sent to over 10,000 employers in Arizona,[vii] who generally have until the end of October to determine how to handle the rebate, including what portion, if any, is owed to individual employees." [viii]

What should an employer do with the rebate check?

There is little specific guidance for employers on how to calculate the portion of the rebates owed to plan participants (employees).  Michael Trupo, spokesman for the US Department of Labor's Employee Benefits Security Administration,  was recently quoted in a New York Times article, saying:   "The amount of the rebate that employers must return to employees, or spend for their benefit, is generally limited to the amount that the workers contribute to their premiums. So if a company pays 70 percent of its workers' premiums, it can keep 70 percent of the rebate."[ix] It remains to be seen how many companies allocate a portion of the rebates to workers, how many keep the entire rebate, or how many companies even notice they received a rebate that may be owed to their employees.

About the Authors:

James RoughCFE, CCEP is an Associate Director in the Disputes and Investigations practice. James is a Certified Fraud Examiner ("CFE") and a Certified Compliance and Ethics Professional ("CCEP") with over a decade of experience providing investigation, compliance, financial and accounting services to attorneys, boards of directors, and organizations domestically as well as in Europe, and the Middle East. He can be reached at 602.528.8001.

Scott Richardson is a business and insurance attorney at the Phoenix law firm of Jaburg Wilk. He assists clients with business issues, insurance coverage, licensing issues and litigation.  Scott can be reached at 602.248.1012 or sjr@jaburgwilk.com .

Mr. Rough and Mr. Richardson would like to acknowledge and thank Navigant's Matt Ryan and Joshua Leventhal for their data analytics work that contributed to this article.

[i] It should be noted not all employees of these companies are plan participants and as such would not be eligible for a rebate.

[ii] "The 80/20 Rule: Providing Value and Rebates to Millions of Consumers." Healthcare.gov, June 21, 2012, http://www.healthcare.gov/law/resources/reports/mlr-rebates06212012a.html.

[iii] Code of Federal Regulations, title 45, sec. 158.210(a)-(c).

[iv] "Notice of Health Insurance Premium Rebate." The Center for Consumer Information & Insurance Oversight, http://www.cciio.cms.gov/resources/files/mlr-notice-2-group-markets-rebate-to-policyholder.pdf.

[v] The Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2011 Annual Survey (Menlo Park, CA: Henry J. Kaiser Family Foundation, 2011), 150.

[vi] "Medical Loss Ratio Data and System Resources." The Center for Consumer Information & Insurance Oversight, http://www.cciio.cms.gov/resources/data/mlr.html.

[vii] Navigant Consulting, Inc. analyzed draft submission data as of August 5, 2012, http://www.cciio.cms.gov/resources/data/mlr.html. It should be noted Navigant estimates the average distribution per employer in AZ is less than $2,000; however, the range in distributions vary greatly based on the insurer and market.

[viii] U.S. Department of Labor. Guidance on Rebates for Group Health Plans Paid Pursuant to the Medical Loss Ratio Requirements of the Public Health Service Act (2011), http://www.dol.gov/ebsa/newsroom/tr11-04.html.

[ix] Bernstein, Nina, "Health Insurer Refunds May Stall in Employers' Hands." New York Times (New York) August 9, 2012, http://www.nytimes.com/2012/08/10/nyregion/health-insurance-refunds-may-stall-in-employers-hands.html?pagewanted=all&_r=1&.

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This article is not intended to provide legal advice and only relates to Arizona law. It does not consider the scope of laws in states other than Arizona.  Always consult an attorney for legal advice for your particular situation.