Carriers are required to send out Medical Loss Ratio (MLR) payments to employers by September 30th.
When an employer receives one of these MLR checks from the insurer, they’ll need to carefully consider how the funds must be spent - they should not just keep it. This is because any portion of the rebate that is considered “plan assets” has to be used in a very specific manner. In other words, if employees paid any portion of the total premium, then that portion related to the MLR rebate check is considered plan assets and can only be used to benefit those participants, not the employer.
For instance, if employees paid 20% of total premiums last year and the employer contributed 80%, then 20% of the rebate check is considered “plan assets” and should only be used for the benefit of plan participants.
There are 3 basic methods an employer may use to spend this portion on participants: 1) Pay out a taxable cash refund 2) Offer a premium holiday for the amount of the rebate 3) Provide some type of benefit enhancement.
There is no de minimis amount for distribution of any portion that’s considered plan assets under the rules. The only leeway given relates to the cost of including former participants in the rebate distribution. In other words, even if the rebate is a very small amount and dividing it up between participants results in a few dollars, any portion related to plan assets still has to be given back to current participants, and possibly to former employees (such as COBRA qualified beneficiaries and retirees).