The Medical Loss Ratio (MLR) provision of the Affordable Care Act (ACA) limits the amount of premium income that insurers can keep for administration, marketing, and profits. The ACA requires health insurers to publicly report the portion of their premium dollars spent on health care costs, quality improvement, and other activities in each state they operate in. MLR rebates are based on a 3-year average.
Tufts Health Plan is required to rebate a portion of insurance premiums received in 2021 if they did not spend at least 88% of small group and 85% of large group funds on health care for their members.
In compliance with Massachusetts State and Federal MLR standards, small and large group employers will receive a rebate check from Tufts Associated Health Maintenance Organization, Inc. or Tufts Insurance Company (Tufts Health Plan) by August 31, 2022.
For 2021, Tufts Associated Health Maintenance Organization, Inc. spent 83.9% of a total of $505,431,871 in premium dollars on health care and activities to improve health care quality. Since these costs came in under the 88% small group target for Massachusetts by 4.1% of premiums received, Tufts Health Plan must rebate 4.1% of the total health insurance premiums paid by the employers and employees in these group health plans.
Tufts Insurance Company spent 82.1% of a total of $33,876,771 in premium dollars on health care and activities to improve health care quality. Since these costs came in under the 88% small group target for Massachusetts by 5.9% of premiums received, Tufts Health Plan must rebate 5.9% of the total health insurance premiums paid by the employers and employees in these group health plans.
For 2021, Tufts Associated Health Maintenance Organization, Inc. spent 83.9% of a total of $569,267,584 in premium dollars on health care and activities to improve health care quality. Since these costs came in under the 85% large group target for Massachusetts by 1.1% of premiums received, Tufts Health Plan must rebate 1.1% of the total health insurance premiums paid by the employers and employees in these group health plans.
Tufts Insurance Company spent 83.8% of a total of $231,828,587 in premium dollars on health care and activities to improve health care quality. Since these costs came in under the 85% large group target for Massachusetts by 1.2% of premiums received, Tufts Health Plan must rebate 1.2% of the total health insurance premiums paid by the employers and employees in these group health plans.
Tufts Health Plan is issuing Medical Loss Ratio (MLR) rebate checks for 2021. Tufts is required to send this rebate to group health plans by August 31, 2022. Your eligible employees who were active Tufts Health Plan members through December 31, 2021 (or, if applicable, the date your group health plan terminated the coverage), will receive a letter to help explain the MLR rebate.
Tufts will send notification letters to employers postmarked no later than August 31, 2022. Employers will be responsible for distributing the rebate to their enrolled employees.
What do employers need to do with the premium credit?
Employers that receive a premium credit will need to decide how they will administer the distribution of the credit to plan participants.
As an employer, you have fiduciary responsibilities regarding the use of the Medical Loss Ratio rebates. Some or all of the rebate may be an asset of the plan, which must be used for the benefit of the employees covered by the policy.
What portion of the rebate needs to be distributed to plan participants?
Employers will need to determine what portion of the rebate their employees are entitled to receive.
For example, if the employer paid the entire cost of the insurance coverage, then no part of the rebate would be attributable to participant contributions. However, if the employer pays 75% of the premium and an employee pays 25%, the employer would distribute 25% of the rebate to the employees.
The distribution allocation method is not required to exactly reflect the premium activity of individual plan participants. In many situations, the fairest, most reasonable, and most objective method of allocation may be as easy as dividing the rebate evenly over all current plan participants, even if those participants made different contributions to the plan based on class, and income, or coverage tier.
How do I issue the rebate?
Once the employer has decided on each employee’s share of the rebate, it has two options:
- Issue rebate checks
- Recommended: Give participants a “premium holiday” by applying the rebate amount toward future premium payments
The first option – rebate checks – tends to be administratively burdensome, and results in tax consequences for rebate recipients. Accordingly, as a general matter, applying the rebate towards participants’ future premiums will be the best choice for many employers.
- Total group health plan premiums paid to a carrier during 2021 = $180,000
- Total employee payroll deductions during 2021 plus COBRA premium payments received by the employer = $45,000 (i.e. participants paid 25% of total plan premiums for the year)
- The employer receives a $4,320 rebate check from the carrier
- In this example $1,080 (25% of the $4,320) must be returned to participants
Credits should be distributed within three months of receipt.
How do I determine which employees are eligible for the rebate distribution?
Employers should distribute rebates only to subscribers (employees) who were enrolled during the year in which the rebate was paid rather than the reporting year on which the rebate was calculated.
As to issuing a rebate to former COBRA participants and current active participants: there is no requirement that former participants be included or excluded. If a fiduciary determines that the cost or burden of including former participants in a rebate distribution is too high, it may properly decide to allocate the rebate only to current participants. Current COBRA participants must be included.
The rebate generated by each plan should be distributed to participants in the plan – so HMO rebate to HMO participants and PPO rebate to PPO participants. The employer has the discretion to decide whether to distribute the active rebate to active participants, the COBRA rebate to COBRA participants, etc., or whether to pool the rebate by plan and distribute it to all participants in that plan.
Using a rebate generated by one plan to benefit the participants of another plan would be a breach of ERISA rules.
How do I notify plan participants of the rebate distribution?
An explanation is not required, but it likely will reduce questions and misunderstandings over the long run, particularly since if a rebate is paid, the insurer is required to send a notice to all participants of the plan, stating that a rebate is being paid.
An employer’s explanation does not need to be detailed; something like this may be enough:
- XYZ Company has determined that it is in the best interest of our participants to use the Medical Loss Ratio Rebate to provide a “premium holiday” for the month of October 2022. This means that your share of the premium for October will be reduced to $_____.
- XYZ Company has determined that it is in the best interest of our participants to return your share of the rebate to you in cash. The rebate will be added to your ___________, 2022 pay as taxable income
Employer Next Steps
- Decide how you will administer the distribution of the credit to plan participants.
- Determine what portion of the rebate your employees are entitled to receive and which employees are eligible for the rebate.
- Issue the rebate credit as a premium holiday or issue rebate checks within three months of receipt. If you are a Full-Service client with HRK, contact your Client Account Manager to schedule the “premium holiday” on an upcoming payroll. If you are not a Full-Service client, you should work with your payroll provider to apply the “premium holiday”.
- Notify plan participants of the rebate distribution.
For general information about your responsibilities regarding the rebate, you may contact the Department of Labor’s Employee Benefits Security Administration at 1-866-444-EBSA (3272) or review the Department’s technical guidance on this issue on its website.
Visit Tufts 2021 MLR Rebate Information page for:
- Copies of all letters being sent to employers and subscribers
- FAQs for members and employers, which include more information about MLR Rebates and potential methods for disbursing these rebates to employees
If you have further questions regarding this e-Alert, please contact our Benefits Team.
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