Your daily trip to the mail box just got more interesting. You received a check from your health insurance provider. But, why? What is it, and is it taxable to you? What if you have insurance through your employer, will you get a check, or rebate?
Why are you receiving this check from your health insurance provider?
Many major medical insurance carriers (Anthem Health Insurance, Kaiser Insurance, Blue Shield Health Insurance, to name a few) have begun issuing rebates to affected customers. This rebate is the result of the health insurance provider’s MLR or Medical Loss Ratio calculation.
What is the Medical Loss Ratio?
In general terms, a health insurance provider’s Medical Loss Ratio (MLR) is the percentage of premium revenue the provider spends on direct care for patients and efforts to improve care quality. The Patient Protection and Affordable Care Act (PPACA) mandates that every health insurance provider maintain its MLR above 85 percent in the large group market and 80 percent in the small group and individual markets. If an insurance provider’s MLR falls below the 80 percent or 85 percent threshold, the insurer must send rebates to the people it insures.
What if I have insurance through my work, will I get a rebate?
Maybe. The Rebates are being sent to employers either as a check or a credit toward future premiums. The Rebate should then be divided between the employer and its employees according to the percentage of total premium that each paid. For example, if a rebate of $20,000 is paid to an employer, and the plan’s subscribers paid 40 percent of the total premium, the employer would be required to use $8,000 (40 percent of $20,000) for the benefit of the employees, and would retain $12,000 (60 percent of $20,000). And, the employer has a few options for distribution to current employees enrolled on the plan.
What are the distribution options for employers?
These final rules, codified in Code of Federal Regulations, (45 C.F.R § 158.242), provide three payment options for employers. All three options require that the employer “use the amount of the rebate proportionate to the total amount of premium paid by all subscribers under the policy, for the benefit of subscribers.”
Option #1: Reduce subscribers’ portion of the annual premium for the subsequent policy year for all subscribers covered under any group health policy offered by the plan, at the time the rebate is received.
Option #2: Reduce subscribers’ portion of the annual premium for the subsequent policy year only for those subscribers covered by the group health plan option on which the rebate was based, at the time the rebate is received.
Option #3: Provide a cash refund to subscribers enrolled in the group health plan option, at the time the rebate is received.
What if I am a former employee that paid premiums during the time of my employment, am I entitled to a rebate?
No. none of these options require tracking former enrollees or determining who was covered by which issuer the prior year; they all require that the rebate be paid to current enrollees. Rebates from former subscribers who are no longer on the plan are to be aggregated and used for the benefit of current subscribers in one of the three ways set forth above. Questions about COBRA?
What if my Company went out of business?
In the event that a rebate is issued for a group health plan that has been terminated at the time of repayment and the insurance provider cannot, despite reasonable efforts, locate the policyholder whose employees were enrolled in the plan, the insurance provider must distribute the rebate directly to the subscribers by dividing the entire rebate in equal amounts to all subscribers without regard to how much each subscriber actually paid toward premiums. Get low-cost individual insurance quotes here.
Are the rebates that I receive taxable?
It depends on if you received the rebate from an individual insurance health plan, or a group health plan that you received through work. Guidance can be found here.
Click here if you have questions about dependent status?
And shop for individual insurance plans here.