Amwins Connect - September 2024 Question of the Month

Amwins Connect – September 2024 Question of the Month

Question

If an employer/plan sponsor received a Medical Loss Ratio (MLR) rebate from the carrier, does the employer/plan sponsor have to distribute a portion to terminated employees if employees contributed towards medical premium?

Answer

If employers/plan sponsors are receiving MLR rebates, there are compliance obligations pertaining to how the rebates are to be used. If the employees contribute towards medical premium, the Department of Labor (DOL) requires distribution of the rebates appropriately to eligible plan participants within three (3) months of receiving the rebate from the carrier.

Whether former participants should receive the MLR rebate allocations is not completely clear in the guidelines. The DOL guidelines refer to administrative cost to providing rebates to former participants (referred to as ‘hard costs’ which would be the cost of producing a check as well as related postage and handling). However, there could also be additional costs associated with tracking down former participants. Therefore, excluding former participants could be allowed. This would be based on a cost analysis and if the total cost exceeds the rebate amount being distributed to former and current employees.

From the DOL guidelines:

For example, if a fiduciary finds that the cost of distributing shares of a rebate to former participants approximates the amount of the proceeds, the fiduciary may properly decide to allocate the proceeds to current participants based upon a reasonable, fair and objective allocation method.

Other Resources

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