• New Medical Loss Ratio Regulations Provide Details on Future Rebates
  • December 30, 2010 | Author: Mary V. Bauman
  • Law Firm: Miller Johnson - Grand Rapids Office
  • Under Health Care Reform, beginning in 2011, health insurers must spend a minimum percentage of each premium dollar on medical care and health quality improvement. If they do not, policy enrollees are entitled to a rebate. The U.S. Department of Health and Human Services has issued regulations providing details on how insurers should calculate medical loss ratios and provide the rebates.

    Under the medical loss ratio requirements, the minimum percentage to be spent on permissible expenses is 80 percent for insurers in the individual and small group markets and 85 percent for insurers in the large group market. For this purpose, the large group market generally means employers with more than 100 employees. However, until 2016, each state may set a lower limit of 50 employees for purposes of differentiating between the small and large group markets under the medical loss ratio rules. (Michigan currently defines a small group as having a maximum of 50 employees.)

    Insurers must submit reports regarding their medical loss ratios to the U.S. Department of Health and Human Services for calendar year 2011 by June 1, 2012. Insurers will be required to start providing rebates with respect to any medical loss ratio failures by August 2012.

    The rebates are to be provided to enrollees. For current enrollees, insurers may issue the rebates either in the form of a premium credit or a lump sum payment. For former enrollees, only a lump sum payment is permitted. In the case of a fully-insured employer group health plan, the regulations clarify that even though the enrollee may be the employee, the rebate can be provided to the employer. This is only permissible, however, if the employer agrees to distribute the rebate on behalf of the insurer and where the insurer maintains records showing accurate distribution of the rebate.