What an Employer Should Do with Its Health Insurance Rebate Check

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Recently, many employers have been receiving checks labeled “rebates” from their healthcare insurers, and their first question is, “Why am I receiving this?” Under the Patient Protection and Affordable Care Act (“PPACA”), health insurance issuers in the group or individual market must provide an annual rebate to enrollees if the issuer’s medical loss ratio (“MLR”) fails to meet minimum percentages. These minimum percentages are 85 percent in the large group market and 80 percent in the small group or individual market. The rebates may either be paid in cash or used to reduce the amount of an employee’s health insurance premium payment. Insurers must distribute the rebates by August 1.

These rebate checks can pose a trap for employers. First, many are unaware of the rebate provision in PPACA. Second, many are unsure what to do with them. Because these checks represent a rebate of premiums paid to the insurance company for the purchase of health insurance, employers must be alert as to what they are required to do with the checks. Unfortunately, many insurance providers are leery of discussing how to handle distributions of rebate due to legal considerations.

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