It’s August 2012 and the continued implementation of the Patient Protection and Affordable Care Act means rebate checks should have arrived for the 12.8 million Americans who will receive more that $1.1 billion in rebates. These rebates are the result of a requirement, called the Medical Loss Ratio (MLR) rule, that insurance companies spend at least 80 percent or 85 percent of premiums on medical care. A large part of these rebates will be sent to employers providing health care to their employees, leaving employers with decisions to make on how to handle the rebate. Can the employer keep all of the money? Keep some of it? Are there ERISA implications? Must the money be spent within three months? To all, the answer is a confusing “maybe.”Many employer-sponsored health care plans involve sharing costs between employer and employee contributions. In such a situation, the employer is likely required to provide a proportionate share of its rebate to employees but can keep the rest. However, calculating that proportionate share may become complicated if an employer offers individual plans, plus-one plans, and family plans, all with different amounts of employee contributions. Further complicating matters is the fact that such rebates may be proportionately considered “plan assets” under ERISA, triggering additional fiduciary duties, along with a requirement to distribute rebates within three months or to hold the rebate in a trust.
To try to simplify matters, some employers may choose to rebate the full amount to employees and avoid the headache of complex proportionate calculations. Of course, it is never that simple, because with any rebate to employees comes another question: Is it taxable? If the employee premiums for their employer-sponsored health plan are deducted pre-tax, then the rebates may be subject to employment taxes, employer withholdings, and W-2 reporting requirements. Conversely, an employer may seek to avoid both the proportionate calculations and the tax calculations by passing the rebate on to employees in the form of a “premium holiday,” such that it is applied to offset future premium contributions by employees.
Whatever the approach, employers must be aware of the type of plan or plans provided to employees and the specific requirements for each type of plan under the new law. Employers that are uncertain or unsure of the best — or proper — approach should contact an attorney for further guidance.
This is a unique opportunity for employers. Keeping a proportionate share of the rebate may help clean up a lingering gap on the books. Or a late-summer one-time rebate to employees may be just what the doctor ordered, providing a little good news and spare change to generate goodwill and a positive workplace environment.
For employers or their general counsel who wish to dig into the specifics, the Department of Labor issued a Technical Release entitled, “Guidance on Rebates for Group Health Plans Paid Pursuant to the Medical Loss Requirements of the Public Health Service Act”. Additional information about the MLR is available at the HealthCare.gov Web site.