HRB 42 - Final Minimum Loss Ratio Regulations Issued and ERRP Closes
Released December 12, 2011 I Download as a PDF December 12, 2011 --
Final Minimum Loss Ratio Regulations Issued
One of health care reform’s more challenged provisions relates to what is known as the minimum loss ratio (MLR) rules. These rules require insurers issuing individual and group health plans to spend a certain amount of premium dollars on medical care and health care quality improvements. And, if the insurer does not meet the required target, a rebate is owed to the policyholder and subscriber.
Generally, the MLR rules require insurers to spend at least 85% of premium dollars paid by the large group market (over 100 employees) on medical claims; 80% in the small group (100 or fewer employees) and individual markets.
The MLR rules apply only to insured health plans. They do not apply to self-funded plans, nor do they apply to non-health insurance products.
These rules became applicable to insurers issuing individual and group health plans on January 1, 2011.
On December 7, 2011, the governing agencies (HHS and DOL) issued several pieces of implementation guidance in the form of two sets of final regulations, one set applicable to non-Federal governmental plans, and one set applicable to government plans and plans subject to ERISA together with a Technical Release. Of particular interest to employers, these regulations address how rebates are to be allocated. These final regulations become applicable on January 1, 2012; the first rebate is due in August 2012.
Method for Sharing Rebates
Generally, in the case of government plans and plans subject to ERISA, the rules allow the rebate paid to the policyholder to be shared proportionately with the plan participants. In the case of a non-governmental, non-ERISA plan, such as a church plan, the rebate can be paid to the policyholder only after the insurer receives “written assurance” from the policyholder that the rebates will be used to benefit individuals covered under the plan. Otherwise, the insurer must distribute the rebates directly to the individuals covered by the group health plan during the MLR reporting year on which the rebate is based.
Generally, the regulations require that the rebate be shared with participants proportionate to the participant’s contribution. The regulations provide ways in which the rebate can be tax-favored; specifically, by using the rebate to offset future premium.
The plan can, by its written terms, define how the rebate is to be used, such as for administrative expenses, as a premium credit, etc. The plan must, of course, ensure that ERISA’s exclusive benefit rule is satisfied. What this means is that plan assets must be used for the exclusive benefit of plan participants. In the absence of explicit detail in the plan, the DOL issued a Technical Release to provide guidance to ERISA plans on the proper use of rebates.
If the plan or trust is the policyholder, the rebate must be paid to the trust. If the employer/plan sponsor is the policyholder, and the employer pays the entire premium, the employer is entitled to receive the entire rebate. Conversely, if the participant pays the entire premium, the participant is entitled to the entire rebate. If the employer pays a fixed percent of the premium, and the participant is responsible for the balance, the participant is entitled to an amount of the rebate that does not exceed the participant’s prior contribution to the plan. If the participant pays a fixed amount, and the employer pays the balance, the employer would be entitled to the portion of the rebate that does not exceed the employer contribution.
If there is no trust in which to deposit rebates, then the rebates must be used within 3 months; or, the rebates can be used to reduce future premium. This may be, in many cases, the most practical use of rebate money.
If the group health plan has been terminated at the time of rebate payment, and the insurer is unable to locate the policyholder, then the insurer must distribute the rebate directly to the individuals covered under the plan, in equal amounts proportionate to the premium paid by the policyholder, without regard to the amounts paid by the covered individuals.
Notice of Rebates
The MLR rules require insurers issuing group health plans to provide notice of any rebate of premium to both the policyholder and individuals covered under the plan. The Secretary of HHS will develop a model notice to be used for this purpose. The notice must include the following information:
- A general description of the MLR concept;
- The purpose of setting an MLR standard;
- The applicable MLR standard together with the insurer's MLR;
- The insurer's aggregate premium revenue, minus any Federal and State taxes and licensing and regulatory fees that may be excluded from premium revenue;
- The rebate percentage and the amount owed to covered individuals based upon the difference between the insurer's MLR and the applicable MLR standard;
- A statement explaining that the total aggregate rebate for the group health plan is being provided to the policyholder;
- If the plan is subject to ERISA, a statement that the policyholder may have additional obligations under ERISA’s fiduciary responsibility provisions relating to handling of rebates and contact information for question pertaining to the rebate.
- If the policyholder is a non-Federal governmental plan, a statement that the proportion of the rebate attributable to subscribers' contribution to premium must be used for the benefit of subscribers.
- If the policyholder is a group health plan that is not a governmental plan and is not subject to ERISA, a statement that the policyholder has provided written assurance that the proportion of the rebate attributable to subscribers' contribution to premium will be used for the benefit of current subscribers. If the policyholder did not provide such written assurance, then the issuer must distribute the rebate evenly among the policyholder's subscribers covered by the policy during the MLR reporting year on which the rebate is based.
ERRP Update – Program Closes
CMS announced several months ago that the $5 billion dollar funding allocated to the Early Retiree Reinsurance Program (ERRP) was close to exhaustion. CMS stopped accepting applications for reimbursements as of May 6, 2011 (see Grandfathered Status and ERRP Updates, 4/4/2011).
On December 9, 2011, CMS announced that it has paid out $4.5 billion in reimbursement requests since the program began in June, 2010. CMS has determined that no claim incurred on or after January 1, 2012 will be reimbursed from the program since the balance of the money available will have been exhausted.
About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Leawood, Kansas office.
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