For group health plans, in most cases the insurer is allowed to send the rebate payment to the employer, leaving it to the employer to distribute the rebate among the employees. The insurer is required to send the notice of the rebate to both the employer and to each employee, however.
The rebate is paid to individuals and employers if their medical coverage through an insurer and during the 2011 calendar year when that insurer’s Medical Loss Ratio was less than the required percentage (i.e., the insurer spent less than 85% of premiums received on claims and allowed clinical activities). The insurer is required to send a notice, either along with the rebate payment or separately, to those individuals whose plans are subject to rebates. Both the notices and rebate payments are due on August 1, 2012.
What Are the Employer’s Obligations Once it Receives the Rebate?
If employees paid a portion or percentage of the premiums paid to the insurer, then the same portion or percentage of the rebate payment received from the insurer is deemed attributable to the employees (the “Employee Share”). The Employee Share of the rebate payment is considered “plan assets.” Under ERISA, that typically would mean that the Employee Share must be held in trust, and used exclusively for the benefit of the employees and other plan beneficiaries, and/or applied to plan expenses. The Department of Labor has stated that it will allow a limited exception to the trust requirement if the Employee Share is properly used within 3 months of receipt, whether paid as a cash rebate to employees or applied to pay premiums (and reduce employee contributions).
Plan fiduciaries (anyone with authority or control over the plan assets) are responsible for ensuring that the Employee Share is appropriately handled. Decisions on what to do with the Employee Share are subject to fiduciary standards, including the obligation to act prudently, in the interests of participants and beneficiaries, and in accordance with the terms of the plan (although typically plan documents won’t yet have language addressing this situation). Allowable options for the Employee Share include (but are in no way limited to):
- Paying a cash rebate to each employee who participated in the plan during 2011
- Applying the Employee Share to reduce employee contributions in 2012-2013
- Applying the Employee Share to provide richer benefits (i.e., reduce cost-sharing within the plan or add additional benefits)
Rebates attributable to former employees should likewise be handled consistent with ERISA fiduciary standards, including consideration of costs to the plan to locate and send payments to former employees. Questions regarding proper fiduciary handling of the Employee Share should be addressed with ERISA counsel. In other words these requirements will require time and energy previously devoted by an employee or a few to more productive pursuits.
PPACA requires insurance companies and employers to provide simple-to-understand summaries of the benefits and coverage (“SBC”) provided under both individual and group health plans. These summaries must be provided for most participants beginning with the first open enrollment period occurring on or after September 23, 2012. For those enrolling outside of an open enrollment period (such as HIPAA special enrollees), the SBC requirements begin to apply on the first day of the first plan year beginning on or after that same date (i.e., January 1, 2013 in the case of a calendar year plan).
Who Must Provide SBCs
Both insurance companies and employers that sponsor group health plans (regardless of employer size or number of participants in the plan) have obligations to provide SBCs. Employers will need to speak with their insurers to discuss how the SBC will be delivered to participants. For group health plans that provide coverage through a policy of insurance, the insurer is only required to provide the SBC to the plan sponsor (the employer), but many employers may look to have the insurer administer the SBC obligations, similar to how they have engaged the insurer to handle COBRA notices. Employers that self-insure their group health plans will be responsible for providing the SBCs, but typically will look to outsource these obligations to their third-party administrators.