In mid-April, the Kaiser Family Foundation (KFF) released a Data Note on 2020 Medical Loss Ratio (MLR) rebates, which are due to groups and individuals later this year. Under the Affordable Care Act (ACA), an insurer is required to use a specified percentage of each premium dollar received to pay for medical claims and activities that improve quality of care.
For small business and individual health insurance policies, the MLR is 80%, which leaves 20% of premium revenue to go toward administration, marketing, and profit. The MLR is higher for large group insurance plans, which must spend 85% of premium dollars on claims and quality improvements.
Insurers that fail to meet the required MLR must pay rebates to customers. MLR rebates are based on a three-year average, which means that 2020 rebates will be paid based on insurers’ financial data for 2017, 2018, and 2019. Rebates can be given to customers via a premium credit or a check. For those insureds with employer-based coverage, the rebate can be sent to the employer – with checks distributed in the fall.
According to a U.S. Department of Labor bulletin and the Society for Human Resource Management (SHRM), employers’ responsibility for rebate distribution depends on who paid for the coverage. For example, if the employer paid the entire cost, no part of the rebate is due to participants. If participants/employees paid the entire cost, they are due the full rebate. If the cost is shared, employers and employees are due a proportional share of any rebate. Employers can either distribute rebates to employees or apply them toward future premiums, taking into consideration potential tax reporting (for rebates paid directly to employees) as well as the cost effectiveness and administrative feasibility of distributing funds received.
KFF reported that preliminary insurer data compiled by Mark Farrah Associates projects companies will issue a total of nearly $2.7 billion in rebates this year – nearly double the record $1.4 billion distributed last year. In 2020, about two billion dollars will go to individual market insureds, while small groups will receive $348 million and large groups will be rebated $341 million. Healthcare Dive says individual rebates will average $420 and enrollees in large groups will average $110. Small groups will be rebated the most – an average of $1,850 each. Final rebate data is expected this summer, as insurers must finalize their numbers by the end of the July with payouts due in September.