Guidance for handling your MLR Rebate


  • Revised Rules on Who Receives Rebates Related to Employer-Sponsored Plans. The biggest news in the guidance is the change in the rules on who receives the rebates. Under the final regulations, insurers must provide the rebates for individuals covered by group health plans subject to ERISA or the PHSA to the policyholder—typically the employer sponsoring the plan. (As background, ERISA generally applies to private-sector employer plans, while the PHSA generally applies to non-federal governmental employer plans.) According to HHS, requiring insurers to apportion and pay rebates directly to policyholders and each of their subscribers (who are generally employees) in the group health plan context (as provided by the interim final rule) had unintended administrative consequences as well as potential tax consequences for insurers, employers, and individuals.
  • Guidance for ERISA Group Health Plans Receiving Rebates. The DOL Technical Release, which applies to ERISA plans, explains that existing fiduciary duty and plan asset rules govern treatment of insurer rebates. Applying those rules to MLR rebates, the DOL notes that they may qualify as ERISA plan assets (in whole or part) depending on various factors, including the terms of governing documents, whether the insurance policy is issued to the plan itself (or a related trust), and whether insurance premiums are paid from trust assets. Other considerations also apply, including the relative proportion of premiums paid by plan participants (e.g., through employee salary reductions under a cafeteria plan) and the amount of plan administrative expenses paid by the plan sponsor. Any portion of a rebate that constitutes plan assets must be used for the exclusive benefit of plan participants and beneficiaries, and ERISA fiduciary principles must be followed in choosing how to use that portion of the rebate. The DOL notes that, in choosing an allocation method, “the plan fiduciary may properly weigh the costs to the plan and the ultimate plan benefit as well as the competing interests of participants or classes of participants provided such method is reasonable, fair and objective.” Examples of allocation methods mentioned in the guidance include refunds to participants or reductions in future participant contributions or benefit enhancements. In addition, this Technical Release provides that prior DOL Technical Release 92-01 (which generally excuses insured group health plans from the obligation to hold participant contributions in trust and from the obligation to file Form 5500 as a funded plan) will be treated as applying to MLR rebates, provided they are used within three months of receipt to pay premiums or refunds.