What To Do with an MLR Rebate Check?

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Contact

Insurers have begun issuing medical loss ratio (MLR) rebate checks for 2011. Particularly when an MLR rebate is small, you may be tempted to put the check in a drawer and forget about it. Employers should resist that impulse and take quick action after they receive an MLR rebate check. In most cases, the U.S. Department of Labor (DOL) requires use of any plan asset received through an MLR rebate within three months in order to avoid trust obligations under the Employee Retirement Income Security Act of 1974 (ERISA).

Employers receiving a rebate check face several questions:

Why did we get a check?

The Affordable Care Act imposed new MLR standards for insurers, requiring that insurers spend a minimum percentage on the reimbursement of clinical services and the improvement of care. Those who spend less must issue rebates. For group health coverage, these rebates are generally paid to the policyholder, which is either the health plan itself or the employer.

Whose money is it?

Once received, an employer must determine who should receive the rebate. The DOL has issued a technical release that details the legal issues raised by this question. If the rebate is a plan asset, then ERISA strictly limits how the rebate may be used.

The name on the check does not automatically determine whether a check is a plan asset. A check may be a plan asset even if payable directly to the employer. While a check issued to a “plan” as policyholder is presumed to be a plan asset, an employer may have a right to the rebate if the plan documents require it.

To determine the proper recipient, the first step is to review the plan document and insurance policy. The plan or policy may include language for treatment of rebates. If the documents are clear, employers generally should follow their terms regarding the rightful owners of the rebate.

If the plan and policy are silent or unclear, the DOL recommends looking to who pays the premiums. An employee contribution toward premiums, and the rebate that results from it, is a plan asset. So if an employer splits the cost of coverage 50/50 with the employee, then half of the rebate would be a plan asset.

In any case, an employer’s share of a rebate cannot exceed the amount spent by the employer for coverage. Any amount above the employer contribution is a plan asset as well.

What can we do with a rebate?

If part or the entire rebate is a plan asset, how that asset is spent is subject to the fiduciary requirements of ERISA. An employer must be prudent, follow the plan, and act in the sole interest of the plan’s participants and beneficiaries when deciding how to share the rebate.

The method for dividing a rebate must be reasonable, fair and objective. It must benefit the participants and beneficiaries of the coverage for which the rebate is paid, but can favor the plan’s current participants over former participants under certain situations. Direct payments to participants, reduced premiums, and benefit enhancements in the plan are acceptable methods for using the participant’s share of a rebate that represents a plan asset.

What happens once we receive a rebate?

Receiving a rebate may have tax consequences for the employer and employees who receive it. In most cases (for example, where plan participants pay for group health coverage on a pre-tax basis), a direct payment of the rebate to a participant or a premium holiday will increase the taxable income of an employee, subject to employment taxes (see these FAQs from the IRS for more information). Because a rebate will usually result in the recovery of a prior year’s deduction, most employers that receive part of the rebate must report it as income as well.

While reductions of future premiums are a valid alternative to direct payments, an employer must carefully review its cafeteria plan to confirm the plan sufficiently addresses and permits mid-year premium reductions. The cafeteria plan administrator should consider whether the premium reduction triggers an election change event and if so, what additional administrative tasks will be necessary to comply with the cafeteria plan rules.

Once you receive an MLR rebate check, the clock is ticking. If you haven’t taken steps to use it within three months, the portion that is a plan asset must be held in trust. The best approach is to act quickly, determine what portion of the rebate is a plan asset, who should receive the rebate, and how to deliver any plan asset to plan participants and beneficiaries, and then provide the payment, reduction, or benefit accordingly.

Stephen A. Riga is an associate in the Indianapolis office of Ogletree Deakins.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ogletree, Deakins, Nash, Smoak & Stewart, P.C. | Attorney Advertising

Written by:

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Contact
more
less

Ogletree, Deakins, Nash, Smoak & Stewart, P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.