Medical Loss Rebate (MLR) Rebate Checks

3 Things Employers Need to Know

Employers who sponsored a fully-insured group health plan during any part of calendar year 2023 may have or may soon be receiving a check from their medical insurance carrier if the carrier didn’t meet the MLR thresholds. Medical insurance carriers are required to distribute the MLR rebate check annually by September 30th each year.

The following highlights what you need to know if your company receives an MLR rebate check. For more details, you can review the IMA article here.

What you need to know

1. Not all group health plan sponsors (i.e. employers) will receive a check from their insurance carrier.
   
   If your company’s insurance carrier fails to meet specific MLR thresholds, they are required to issue MLR rebates to policyholders to correct the imbalance. To learn more about MLR thresholds, check out this site.
2. Insurance carriers are required to send a letter to plan enrollees notifying them that a rebate was issued.
   
   The notice to plan participants won’t include the amount of the rebate, but it will state that the rebate was sent to the employer and there may be a portion that is distributed to participants. Employers should consider communicating with participants regarding whether they may expect to receive their portion of the rebate.
3. Employers/plan sponsors should not assume they can keep the MLR rebate funds. Certain rules must be followed to determine the proper allocation of the MLR rebate check.
   
   If the rebate must be shared with plan participants, ERISA trust rules make it so that the employee’s share of the rebate should be distributed within a reasonable time, but no longer than 90 days of the employer’s receipt of the MLR rebate check.

Allocation of the MLR Rebate

The allocation of the MLR rebate can vary depending on the insurance plan and the agreements in place. There are two common methods:

Employer Retention: Some insurance plan documents stipulate that the MLR rebate will be retained by the employer. This money can be used to offset the costs of administering benefit plans and may be applied towards benefit enhancements.

Employee Allocation: If the plan document doesn’t specify how MLR rebates should be handled, the law steps in to provide guidance. In this case, a portion of the rebate is typically distributed among employees, with the exact allocation typically based on the contribution percentages for both the employer and the employees. The rebate may be added as an extra line item of taxable compensation on the next payroll or applied as a credit towards the employee’s next payroll deduction. IMA comment: Calculating Allocation requires two steps: 1) identifying which participants will receive a rebate and 2) calculating the amount of the rebate for each participant. IMA clients can contact their service team for more information including an MLR rebate calculator.

Summary

Employers should take note that there are specific rules regarding distribution and timing of rebate amounts attributable to employees enrolled in the plan. Employers should keep an eye out for a potential rebate check by the end of September each year to ensure rebates are distributed to participants within 90 days, if applicable.

We recommend contacting your benefits broker with any questions.

IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information. This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.