Q: Our health insurance company just sent us a rebate check. What in the world am I supposed to do with it?
A: The rebate you received was the medical loss ratio rebate. You received it because your health insurance plan was deemed to have spent less than 80% (for small groups) or 85% (for large groups) of your premium on claims and health care quality improvements.
What you do with the rebate depends on many factors.
First, is your plan categorized as part of an ERISA Plan, falling under the Employee Retirement Income Security Act of 1974 that governs (among other things) privately funded health care plans? If it is, then that rebate may be a Plan Asset. From here on, let’s assume you have an ERISA Plan.
The next question would be, who paid the premium?
- If you, as the employer, paid the whole insurance premium, then the rebate is the school’s.
- If your employees paid the whole premium, then the rebate is theirs. (I will discuss what you can do with it in a moment.)
- If the premium is paid by both the employer and the employee, you must allocate the percentage of the premium the employees paid from the rebate to the employees. The remaining percentage you paid would be employer’s—the school’s—money.
Now that we know who receives the rebate, what do you have to do with the funds?
You have three options.
- Return the money directly to the employees. (Remember, if the premium was paid in pretax dollars, the employee would have to take a payroll tax form to receive the rebated funds.)
- Give the employees a premium holiday by using the rebate to offset some or all of their premium contributions.
- Use it for a new employee benefit.
Whatever you decide, make sure that you communicate your decision with your employees, as they have been given notice that there was a rebate. For additional information, read over the Department of Labor’s Technical Release on the Medical Lose Ration.
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