Employers that might get health insurance rebates should be talking to legal advisors about how they will use the money.
The lawyers — Brian Pinheiro and Edward Leeds — give that advice in a commentary distributed by Ballard Spahr L.L.P., Philadelphia.
Pinheiro is a partner at the law firm and Leeds is of counsel.
The Patient Protection and Affordable Care Act of 2010 (PPACA) requires health insurers to spend at least 85% of large group revenue and 80% of individual and small group revenue on health care and quality improvement efforts or else pay rebates.
Employers with insured group health plans or insured plan options that had medical loss ratios (MLRs) below the PPACA minimums could get MLR rebate checks in the next few weeks, Pinheiro and Leeds write.
The U.S. Department of Health and Human Services, the U.S. Department of Labor, and the Internal Revenue Service have issued guidance that explains how they want employers to use the rebates, the lawyers say.
Some of the guidance applies to plans that are subject to the Employee Retirement Income Security Act (ERISA).
An ERISA plan “needs to assess whether rebate amounts are plan assets that can be used only for plan purposes, whether any portion of the money needs to be allocated specifically for the benefit of employees participating in the plan, how to make that allocation, and what the tax consequences of an allocation might be,” the lawyers say. “In general, policyholders will be required to apply the rebates to appropriate uses within three months.”
The agencies also have issued rebate use guidelines aimed at plans that are not governed by ERISA, such as state government plans, municipal plans and church plans, the lawyers say.
“Within the limits imposed by the regulations and other guidance, employers retain a meaningful level of flexibility with respect to the rebates they receive,” the lawyers say. “Depending on how a group health plan is structured, an employer may be able to use the rebates it receives (or a significant portion of those rebates) to pay its own share of health insurance premiums.”