What You Need to Know About Medical Loss Ratios

PPACA requires that insurers report to HHS how much of premium revenue is paid for claims and other health care costs.  If an insurer does not meet certain required ratios, it will be required to pay a rebate back to the policyholder.    

While the MLR requirements only directly apply to insurers, they may impact plan sponsors as well, and we have received a number of questions about the new rule. 

What Information Must Be Reported? 

Insurers must report premium revenue, claims payments, expenditures that improve health care quality (such as costs for certain wellness programs), taxes, and administrative expenses.  These numbers all will be part of the MLR calculation (and possible rebate amount).  Reporting does not have to be policy by policy, but may be combined for a report for all policies in a certain market (individual, small, or large group) in a state.    

How Are Rebates Calculated and When Will They Be Paid? 

Generally, the MLR calculation will be the percentage of premium revenue that is used for claims costs and health care quality costs.  If a policy’s ratio does not meet required amounts, the insurer must provide a rebate to enrollees no later than August 1st following the end of the MLR reporting year.  The first rebate payment for the 2011 MLR reporting year will be by August 1, 2012.   

Are Rebates Paid to Plan Sponsors or Individual Employees? 

MLR rebates must be paid to “enrollees,” which are defined as the subscriber, policyholder, or government entity that paid the premium for health care coverage.  Depending on whether the employer or employees (or both) paid the premium, both may be entitled to a portion of the rebate.  The IFR says that an insurer may meet this requirement by entering into an agreement with the group policyholder (in this case, the employer plan sponsor) to distribute the rebate on behalf of the insurer.  The parties will need to document the amount of premium paid by the plan sponsor and employees, the amount of rebate retained by the plan sponsor, and the amount of rebate paid to each employee. 

Does the MLR Rule Apply to Self-Funded Plans? 

No, the MLR rules only apply to fully insured coverage in the individual, small, or large group markets.  For example, the MLR rule would apply to HMO or other insured coverage offered by an employer. 

Does the MLR Rule Apply to Grandfathered Plans? 

Yes, the MLR rule applies to insured plans, both grandfathered and non-grandfathered. 

Does the MLR Rule apply to mini-med and expatriate plans? 

The MLR rule does apply to mini-med and expatriate plans, but in a different way.  For 2011, mini-med policies (defined as having a total annual limit of $250,000 or less) and expatriate policies must be reported separately from other policies.  These policies also will be subject to a different ratio requirement to determine rebates. 

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Got a health-care reform question?  You can ask YOUR health-care reform legislation question online at http://www.surveymonkey.com/s/second_opinions 

You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html     

Contributors:   

Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.   

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.   

PLEASE NOTE:  This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.