3 Questions with…
Michael A. Barbour, Partner with Mercer
A central component of healthcare reform is the mandate that insurance companies spend at least 80 or 85 percent of premium dollars on medical costs. Health plans that fail to meet this minimum medical loss ratio (MLR) for calendar year 2011 must issue rebates to policy holders by August 2012. In its final rules governing the MLR, which took effect January 1, 2012, the Department of Health and Human Services (HHS) shifted some of the burden of finalizing rebate transactions from insurance companies to employers. Michael Barbour, a partner with Mercer, a global leader in human resource and related consulting services, shares his insights on what employers need to know about their role in complying with the MLR mandate.
What do employers need to know about their roles in managing rebates issued by health plans that do not meet the minimum medical loss ratio (MLR) threshold?
Generally, employers need to understand the MLR rules and their complexity, which will help them determine if they want to attempt administration themselves or have someone else do the work.
First, they need to know whether the MLR rules may affect them. Generally, the MLR rules will affect only those employers who offer insured medical coverage to employees. The rules do not apply to self-funded medical programs.
Second, employers need to understand the MLR standard to which their insurers are subject. Typically, plans covering fewer than 50 employees are considered “small” plans and are subject to an MLR of 80 percent of premium. That means costs for things that are not claims or expenses for health improvement cannot exceed 20 percent of premium costs. For employers with 50 or more employees, the MLR standard is 85 percent.
Third, employers need to understand the minimum loss ratio calculation is done by state, so a multistate employer could possibly have MLR rebates in one geography but not another.
Fourth, there is no absolute standard for calculating required rebates. There are exceptions or potential alternatives based on:
- Credibility of an insurer’s book of business in a state
- Whether business is new or renewal
- “Mini-med” and expatriate plans
Finally, employers need to understand that eligibility for a rebate is based on who paid the premium for coverage. For instance, if an employer offers free coverage, the employer is entitled to the rebate. If both employer or policy holder and the employee or subscriber shares the cost of coverage, they are both entitled to some portion of any rebate.
Based on the above, an employer could have not one, but multiple rebate levels and allocations to administer.
What are the biggest challenges for employers in complying with the mandate?
The two biggest problems employers are likely to have are 1) allocating a rebate to those individual plan participants who may have paid premiums during the rebate period, and 2) maintaining records of the rebates and their disbursements. Many employers are expecting their insurers to provide this administration on their behalf.
What can/should employers be doing now to prepare for distributing rebates when the monies are issued by plans in August?
There are three key things employers should be doing now:
- Assessing the likelihood of whether they will be eligible for any MLR rebates
- Discussing with their insurers what support they can provide for administering the distribution of rebates
- Documenting a high-level plan for distributing rebates if it becomes necessary
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