Got a medical loss ratio rebate letter? Here is what an employer does next.
Your carrier sent a check and a letter about a medical loss ratio (MLR) premium rebate. Read this page before you deposit it. It follows what carrier rebate letters typically say and the U.S. Department of Labor’s published guidance.
Three things to know before you deposit the check.
It Is Not Automatically Yours
The rebate is paid to the policyholder, but the Department of Labor states that being the policyholder does not by itself give the employer the rebate. Depending on your plan documents and who paid the premiums, part of it may belong to the employees who paid toward the plan.
The Carrier Expects You to Follow Rules
Carrier letters typically state that employers and group policyholders must follow certain rules to determine whether, and how much of, the rebate must be used for the benefit of covered employees. The letter is a notice, not permission to treat the check as ordinary revenue.
This Is General Information
Nothing here is legal or tax advice. Every plan is different, so confirm the details against your plan documents and policy, and talk to an employee benefits attorney and a tax professional before you decide how the rebate is used.
What a rebate letter tells you.
Why You Got a Check
The carrier states that it spent less than the required share of premium dollars on health care and quality activities, averaged over three years across similar sized groups in the state (2023 to 2025 for the 2025 reporting year), so it owes a rebate. The required share is typically 80 percent for individual and small group coverage and 85 percent for large group.
How Your Share Is Set
The carrier states that each policy sits in a pool, and that the rebate is paid based on each policyholder’s share of premium in that pool, adjusted for items such as taxes, fees and bad debt. The calculation is not based only on your own group’s claims, and it counts premium from COBRA and state continuation participants as well as current employees.
What It Does Not Change
The carrier states the check has no impact on your coverage and does not affect next year’s premium, because each rebate is based on that reporting year. It also states a rebate is not guaranteed every year, so it should not be built into a budget as recurring money.
When It Must Arrive
The letter gives the date by which the carrier must send the rebate or apply it to premium, which federal rules set as September 30 following the reporting year. For the 2025 reporting year, that date is September 30, 2026.
Who Receives the Check
Carriers send the rebate to the group policyholder, which is usually the employer named on the policy, or apply it to premium due by the deadline. The letter also tells employees to contact the employer for how the rebate will be used.
Where to Read More
Carrier letters point to the carrier’s own questions line and to the federal government’s rate review information. For ERISA questions, the letter directs employees to the Department of Labor’s Employee Benefits Security Administration at 1-866-444-3272.
Six steps for the employer.
1. Keep the Letter and the Check Details
The carrier asks you to keep the letter for your records. Note the plan year, policy number, check amount, date received and who the check is addressed to. Get the check to your finance team, but hold off on spending it until the steps below are done.
2. Find Out Who Owns the Rebate
For an ERISA plan, ownership turns on the plan documents, the policy terms and the parties’ understanding. If the plan itself is the policyholder, the Department of Labor states the rebate is generally a plan asset unless the documents say otherwise.
3. Split the Employer Share From the Participant Share
The Department of Labor states that an employer cannot receive more than the premiums and plan expenses it paid, and that the part tied to participant paid premiums is generally a plan asset. If employees pay part of the premium, a portion of the rebate may belong to them.
4. Choose a Fair Way to Use It
Where part of the rebate is a plan asset, the Department of Labor says the person in control is a fiduciary and the method should be reasonable, fair and objective. Cash, premium reductions and benefit enhancements are the usual options. Write down why you picked the one you did.
5. Watch the Timing
Separately from the carrier’s deadline, the Department of Labor states that for certain contributory plans and cafeteria plans, it will not assert a trust violation if the rebate is used within three months of receipt to pay premiums or refunds. Ask your adviser whether that relief fits your plan.
6. Document It and Ask a Tax Professional
Write down how you split the rebate, why the method is reasonable and when it was paid or applied. The carrier states that tax treatment varies with the situation and who receives the rebate, and the Department of Labor expresses no view on tax. Talk to your tax professional before you pay out or keep any part.
The options an employer has for the rebate.
Cash to Participants
The Department of Labor and carrier letters both name cash to employees or subscribers as an option. The share each person receives should follow a method that is reasonable, fair and objective, and cash payments can carry tax consequences for the people who receive them.
Reduce Future Premiums
Applying the rebate to future participant premiums is a recognized option in the Department of Labor guidance, and carrier letters list reducing premium for the upcoming year as a way to distribute it. It spreads the benefit across everyone covered.
Benefit Enhancements
The Department of Labor guidance states a plan may use rebates for benefit enhancements instead of paying cash. Any enhancement should benefit the participants the rebate belongs to, not a different plan or group.
Carrier Applies It to Premium
Carrier letters state that the carrier must either send the rebate or apply it to premium due by the deadline. The Department of Labor guidance indicates that directing the insurer to apply it this way can avoid the need to set up a trust.
Hold It in Trust
The Department of Labor guidance states that plan assets generally must be held in trust. Relief from that requirement applies only to certain plan types and a three month use window, so confirm with your adviser before holding funds in the company account.
When Cash Is Not Cost Effective
The Department of Labor states that cash is not required when it is not cost effective, such as very small amounts or where payment creates tax consequences. The rebate then goes to another permitted use for participants, and the reasoning should be written down.
How the answer changes with your plan.
Employer Pays All Premium
The Department of Labor guidance treats employer paid premiums as not attributable to participants, so the participant share may be small or zero. Plan documents and policy terms still control, so confirm before you treat the whole check as the company’s.
Employees Share the Cost
Where employees contribute, the portion tied to their premiums is generally a plan asset. The guidance sets out different approaches for fixed percentage and fixed amount cost sharing, so bring your payroll deduction history to the conversation with your adviser.
COBRA and State Continuation
The carrier states that your rebate was calculated using premium from COBRA and state continuation participants as well as current employees. Carrier letters add that it is the employer’s responsibility to use the rebate equitably considering all participants on the plan.
Former Employees and Ended Plans
If a plan has ended, the Department of Labor states the policyholder should still follow ERISA’s fiduciary rules and check the plan document for how assets are allocated on termination. If the document is silent, the cost of paying former participants may need to be weighed.
A Very Small Amount
A small check does not remove the need to decide. The Department of Labor guidance lets a fiduciary weigh the cost of paying cash against the amount, and it expects the decision and the reasoning behind it to be documented.
More Than One Plan or Policy
The Department of Labor states that a rebate from one plan cannot be used to benefit participants of another plan. If you carry separate policies, keep each rebate with the plan that earned it and track them separately.
The rules depend on what kind of plan you have.
Governmental Plans
Carrier letters state that for a plan sponsored by a state or local government, the employer must either reduce premium for the upcoming year or provide a cash rebate to employees or subscribers.
Church Plans
Carrier letters state that for a church plan, the employer has agreed to distribute the rebate in one of those same two ways: a premium reduction for the upcoming year or a cash rebate.
Other Employer Plans
Carrier letters state that a plan that is neither governmental nor a church plan is likely subject to ERISA, that some or all of the rebate may be a plan asset to be used for the benefit of covered employees, and that employees can contact the Department of Labor with questions.
Where employers most often go wrong.
Treating It as Ordinary Revenue
Depositing the check and recording it as income before checking ownership can put plan assets in the wrong place. Pause long enough to confirm who paid the premiums and what the plan documents say.
Ignoring the Employee Share
If employees paid part of the premium, part of the rebate may be theirs. Keeping the whole check without a documented basis is the situation the carrier letter and the Department of Labor guidance are written to prevent.
Missing the Timing
The carrier has a deadline to pay or apply the rebate, and the Department of Labor’s three month relief for certain plans runs from receipt. Letting the check sit unreviewed can cost you options.
Skipping the Paper Trail
A short written record of the premium split, the method you chose and the date of payment protects the people responsible for the decision. Keep it with the carrier letter.
Assuming It Will Repeat
The carrier states a rebate is not guaranteed every year. Do not count on one when you set next year’s contributions or budget, and do not promise employees one.
Paying Out Without Tax Advice
The carrier states that tax treatment varies with the situation and who receives the rebate, and the Department of Labor expresses no view on tax. Check with a tax professional first.
A sensible order of work after the letter arrives.
Day One: Log the Check
Record the date received, the amount and the policy number, scan the letter and check stub, and tell whoever handles payroll and benefits that a rebate has arrived.
First Two Weeks: Gather the Facts
Pull the plan document, the policy, the premium invoices for the rebate year and the payroll deduction history. This is the information every later decision depends on.
Before the Deadline: Decide
Choose the method with your adviser and, where it applies, direct the carrier before its deadline. Confirm whether the three month relief in the Department of Labor guidance fits your plan.
Within Three Months: Distribute
For the plan types the Department of Labor identifies, using the rebate within three months of receipt to pay premiums or refunds is what the relief depends on. Do not let this window pass by accident.
Year End: Document and Report
File the written record with the plan documents and tell your tax professional what was paid and to whom. Ask your adviser whether any plan reporting is affected.
Next Year: Ask Again
The carrier states a rebate is not guaranteed every year and that this one does not change next year’s premium. Ask your broker each summer whether your carrier expects to owe one.
Six questions to settle before you spend the check.
Who Paid What?
Pull the premium history for the rebate year and list the employer share and the employee share. Ask your carrier or broker to confirm how the policy was billed, including any COBRA premium.
What Do Our Documents Say?
Ask whoever administers the plan to check the plan document and policy for language on rebates. If the plan is silent, the Department of Labor guidance fills in the default approach.
Is Our Plan Subject to ERISA?
Most private employer plans are, and governmental and church plans generally are not. If you are not sure which applies to you, ask an employee benefits attorney before you act.
Can the Carrier Apply It for Us?
Ask whether the carrier can apply the rebate to premium or send it a different way, and by what date it needs your instructions to do so.
How Will We Explain It?
Decide how you will tell employees what happened to the rebate and keep a short written record. Employees are told by the carrier letter to ask the employer.
Who Do We Call With Questions?
Use the toll free number on your carrier letter for questions about the calculation. For ERISA questions, the Department of Labor’s Employee Benefits Security Administration takes calls at 1-866-444-3272.
Quick answers about the check.
Is This Check Real?
Carrier letters state that the check is real and that it is a federally required rebate. If you have doubts, call the carrier using the number on the letter or the number on your policy materials before depositing it.
Can Employees Ask About It?
Yes. Carrier letters tell employees to contact the employer or plan administrator for how the rebate will be used. Be ready to explain the split, the method and the reason in plain language.
Does It Change Our Coverage?
No. The carrier states the check has no impact on your coverage. It also states it does not affect your premium next year, because each rebate is based on its own reporting year.
Are There Tax Consequences?
The carrier states the tax treatment varies based on the situation and who gets the rebate, and the Department of Labor expresses no view on tax. Your tax professional is the right person to answer this for your plan.
Where Is the Official Guidance?
The Department of Labor addresses how employers handle these rebates in Technical Release 2011-04, which carrier letters point to. It covers ownership, plan assets, fiduciary duties and timing.
Does Our Broker Decide How It Is Used?
No. The decision belongs to the plan sponsor and whoever has control of plan assets, with legal and tax advice. A broker can help gather documents, read the letter and coordinate the right specialists.
What we do when a rebate letter lands.
Read the Letter With You
Send us the carrier letter and your plan details. We will walk through what it says, what the dates mean and which of the steps on this page apply to your plan.
Pull the Premium Split
We can help you gather the premium history and contribution information that the ownership and allocation questions depend on, so your adviser starts with the facts.
Bring in the Right Specialists
For clients, CPAs and attorneys are available through the firm. We do not decide how a rebate is used or give legal or tax advice, but we can help you ask the right questions of those who do.
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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