When employers receive Medical Loss Ratio (MLR) rebates from their insurance carriers, it’s not just a financial credit. It’s a compliance obligation. These funds must be evaluated and distributed in accordance with ERISA and ACA rules, ensuring that any portion attributable to employees is handled properly, documented clearly, and delivered within required timelines.

These steps help ensure employers handle them compliantly in accordance with ERISA and ACA regulations.

Step 1: Determine the Plan Asset Portion

• If employees contributed to the cost of coverage, the portion of the rebate attributable to their contributions is considered a plan asset.
• Employers must calculate the percentage of total premiums paid by employees during the MLR calculation year to determine the share of the rebate that must be returned to them.

Step 2: Distribution Options for the Employee Share

Employers can choose from several methods to return the employee portion:

1. Premium Reduction

• Apply the rebate to reduce future premium contributions for current plan participants.
• This method is simple and benefits all current employees proportionally.

2. Cash Refunds

• Issue direct cash payments to current and/or former employees who contributed to premiums.
• This may be more complex administratively and could have tax implications.

3. Benefit Enhancements

• Use the rebate to enhance plan benefits (e.g., lower deductibles or copays).
• Must be consistent with ERISA fiduciary rules and benefit all participants fairly.

Timing Requirements

The Department of Labor expects employers to distribute the plan asset portion within three months of receiving the rebate to avoid triggering trust requirements.

Tax Considerations

• Cash refunds may be taxable if employees paid premiums with pre-tax dollars.
• Premium reductions typically do not have tax consequences.

Special Cases

• Self-funded plans are not subject to MLR rebate rules.
• Church and governmental plans have many different ERISA obligations.

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