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Medical Loss Ratio Final Rules Released
Medical Loss Ratio Final Rules Released - Rebates Tax Free
By: Brian Elinich, Consultant
On December 7th, the Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services released final rules for the Medical Loss Ratio provision of the Affordable Care Act (ACA). The new final rules go into effect on January 1, 2012 and a fact sheet on the new rules can be found following the attached link.
The ACA Medical Loss Ratio provision requires issuers of fully-insured health plans to devote at least 80% of every premium dollar spent for an individual health plan or small group health plan, defined as 100 enrollees or less, towards reimbursing health care providers for health care services. The remaining percentage of premium dollars can be used by the issuer for administrative expenses including marketing and broker compensation. For large group health plans, the minimum percentage is 85%. Self-insured health plan are not considered health insurance programs and are, therefore, not subject to the ACA Medical Loss Ratio provision.
For issuers who fail to meet the minimum requirements of 80% or 85% for any particular fully-insured health plan market segment (individual, small group, large group), they must issue rebate checks for the excess amounts to the policyholder (group health plan or individual). The final rules released on December 7th provides additional guidance pertaining to the Medical Loss Ratio calculation and the rebate checks:
- Medical Loss Ratio calculation – The calculation will be based on calendar year 2011. The new rules will require the issuer to provide notice to enrollees of the health plan’s Medical Loss Ratio regardless of whether any rebate is due. The Medical Loss Ratio results for all of an issuers health plans must be publically posted in the spring of 2012.
- Report Results to HHS by June 1, 2012 – Issuers must report to the Secretary of HHS all results for all market segments they offer health plans for the 2011 calendar year by June 1st.
- Rebate Checks issued by August 1, 2012 – It was decided in the final rules that the rebate checks will be tax free. The rebate checks will be issued to the policyholder. In the case of a group health plan, ERISA plan sponsors must use the rebate to offset participant premium contributions towards the cost of the plan. The ERISA plan sponsor must also provide notice to enrollees of the health plan that a rebate has been received and how the funds have been applied. Since this notice is a new addition to this reform provision, comments are still being taken on the design of the notice. A plan sponsor not subject to ERISA can either follow the ERISA plan sponsor rule, or, reimburse the funds directly to the enrollee based upon how much the enrollee contributed to the cost of the plan.
The Medical Loss Ratio calculations will continue to be calculated on a calendar year basis going forward. The final rules also addressed the Medical Loss Ratio calculation for mini-medical plans which are also subject to this health care reform provision.