Rebates raise plan-asset and notice questions.
When an employer receives a rebate on a group plan, how it must be used depends on who paid the premium. Employees may be entitled to a share.
Who the rebate belongs to, and what to do with it
When an insurer owes a medical loss ratio rebate on a group health plan, the check goes to the policyholder, which is the employer. That does not mean the employer may keep all of it. How the rebate must be used depends on who paid the premium.
If the employer paid the entire premium and employees paid nothing, the employer generally may keep the rebate. If employees paid part of the premium, the portion attributable to their contributions is generally treated as plan assets under ERISA, and the employer holds it for the benefit of participants. The Department of Labor has said that such amounts should generally be used for participants’ benefit within a short period after receipt, commonly three months.
Common ways to use the participants’ share are to reduce future employee premium contributions, to pay a refund to the employees who were covered during the rebate year, or to fund a benefit improvement for current participants. Each choice has its own tax and administrative consequences, and the right one depends on how many former employees are involved and how large the share is.
We help employers work out the employee share, choose a method, and document the decision. We are not attorneys, and a rebate of any size is worth a short conversation with benefits counsel before the money moves.
What to decide and where it connects
The MLR Rule
What insurers must spend.
Thresholds
The 80 and 85 percent minimums.
Rebate Guide
The rebate rule explained.
Questions about this topic
Can we keep the rebate?
Not always. It depends on how the premium was paid and plan terms. Confirm with your attorney.
Do employees get a share?
Potentially, in proportion to what they paid.
Is there a notice requirement?
Possibly. Confirm with your attorney.
Ready? Send us your renewal, or talk it through with someone first. General information, not legal or tax advice.
Where these details come from.
CMS: Medical Loss Ratio: Federal MLR rule and rebate guidance.
U.S. DOL: MLR rebates: Treatment of rebates by plan sponsors.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
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