The Affordable Care Act (ACA) introduced important changes to the healthcare system, one of which is the Medical Loss Ratio (MLR) provision. This provision is designed to ensure that insurance companies spend a significant portion of the premiums they collect on medical care and services, rather than on administrative costs or profits. Specifically, insurance carriers are required to spend at least 80 percent of premiums for individual and small group policies, and 85 percent for large group policies on healthcare services. If they do not meet these requirements, they must issue rebates to their policyholders.
For the 2023 plan year, insurance carriers are obligated to calculate their MLR and determine whether they owe any rebates. These rebates were to be issued to consumers by September 30, 2024. This means that if you had an insurance plan during this period, you may receive a rebate if your insurance company did not meet the required spending thresholds. This is an important aspect of the ACA, as it aims to keep insurance companies accountable for how they use the money they collect from consumers.
So, how does the MLR provision work?
The MLR is calculated based on the total premiums collected and the amount spent on medical care. For example, if an insurance company collects $100,000 in premiums and spends $75,000 on medical services, its MLR would equal 75 percent. Since this is below the required 80 percent for individual plans, the company would need to issue rebates to policyholders. This calculation encourages insurance companies to prioritize patient care and minimize unnecessary administrative expenses.
If you receive a rebate, it is essential to understand what to do next.
Typically, rebates can be issued in the form of checks, direct deposits, or credits on your insurance premium. When you receive your rebate, carefully read any accompanying information to understand how it is being provided. It is also a good idea to keep records of the rebate, as it may impact your tax filings, depending on your individual circumstances.
If you are a participating employee who paid a portion of your health insurance premiums, you should consult with your accountant or financial advisor for details. Rebate portions that are considered plan assets need to be used to reduce the participating employee premiums for the upcoming year, used to provide enhanced plan benefits, or distributed to participants. In the case where the employer contributes 100 percent of the total premium, and the employee makes no contributions, the employer has the right to keep the entire rebate.
Finally, the coordination of rebate payments can vary by insurance carrier. Some companies may send out rebates automatically, while others might require you to take specific steps to claim yours.
For more information, contact Joseph Becht, CPA, CGMA, Senior Manager, Tronconi Segarra & Associates LLP, at 716.633.1373 or jbecht@tsacpa.com.
