UNDERSTANDING MEDICAL LOSS RATIO (MLR) REBATES

Transcription

1 UNDERSTANDING MEDICAL LOSS RATIO (MLR) REBATES August 21, 2014 Web meeting call in numbers: Passcode:

2 OVERVIEW Welcome and Refresher on MLR Greg Malone, Cigna How to Handle MLR Rebates Mark C. Nielsen, Groom Law Group Questions Closing Remarks Greg Malone, Cigna Mark C. Nielsen, Groom Law Group Greg Malone, Cigna 2014 Cigna 2

3 Questions to be addressed What is the medical loss ratio (MLR) provision? How are MLR rebates calculated? When are rebates distributed? What can you do with the rebates? 3

4 What is the MLR provision? The Affordable Care Act requires insurers to spend a minimum percentage of premium dollars on: Clinical services (e.g., reimbursement of provider claims) and Activities that improve health care quality. Insurers must spend: 80% of premium dollars on claims and quality improvement activities for individual and small group markets in a state 85% for the large group market in a state Measured on a calendar year basis beginning January 1,

5 How is the MLR Calculated? A separate MLR is calculated for each block of business, broken down by: Insurance company State Market (individual, small group and large group) Note: Group policies for which covered employees reside in multiple states are mapped to the state in which the policy was issued 5

6 When Are MLR Rebates Distributed? If a block of business does not meet the applicable 80% or 85% MLR threshold, the insurance company must provide a rebate to individual and group policyholders. For the 2013 MLR reporting year, rebates must be distributed by August 1, 2014 Rebates generally distributed to group policyholder (e.g., employer) Issuers must distribute rebate notices to policyholders and enrollees, but only for policies contained in a cell where a rebate is payable. 6

7 Mark C. Nielsen, Principal Groom Law Group, Washington, D.C. Mark C. Nielsen is a principal in the Groom Law Group, one of the premier employee benefits law firms in the country. Mark specializes in various aspects of employee benefits law, particularly health care and litigation matters. Mark counsels insurers and plan sponsors regarding their compliance with the federal health care reform law, as well as with ERISA and applicable state laws. He is author of numerous publications and is a frequent speaker on health care matters. Mark received his Master's of Law from the Georgetown University Law Center, and his law degree from the State University of New York at Buffalo. He graduated Phi Beta Kappa from Indiana University with a Bachelor of Arts. 7

8 What Can You Do With MLR Rebates? It depends Different rules for ERISA and non-erisa plans Critical Issue: Is the rebate (or a portion of it) a plan asset? If so, must be used for the benefit of plan participants and beneficiaries. 8

9 ERISA Plans: Identifying Plan Assets DOL Technical Release Who is the policyholder? If the plan (or trust): rebate is a plan asset unless language to the contrary in governing plan documents If the employer: rebate is a plan asset unless language to the contrary in plan documents 9

10 ERISA Plans: Identifying Plan Assets Where plan documents are silent, look to source of premium payment: Premium is paid entirely out of trust assets: plan asset Premium paid entirely by employees: plan asset Premium paid entirely by employer: not a plan asset Premium paid by both employer and employees: Plan asset to the extent attributable to employee contributions 10

11 ERISA Plans: Permissible Uses of MLR Rebates If a plan asset, plan fiduciary generally must: Distribute such amounts to enrollees; Enhance benefits under the plan for current enrollees; or Reduce future employee premium contributions to the plan. DOL suggests cash distribution is preferred method, but provides some flexibility. Whatever method chosen, allocation must be fair and reasonable. 11

12 ERISA Plans: Permissible Uses of MLR Rebates Flexibility Former Participants: If not cost-effective to track down and distribute, amounts may be allocated to current participants. De minimis Amounts: If not cost-effective to distribute to current participants, plan may apply toward (1) benefit enhancements or (2) reducing premium payments. Adverse Tax Consequences: If distributing as cash would be taxable event, amounts may be applied toward (1) benefit enhancements or (2) reducing premium payments. Not clear if amounts could be re-allocated for other permissible plan expenses (such as claims payments). 12

13 ERISA Plans: Permissible Uses of MLR Rebates Note: Rebates must be used to benefit people covered by the policy that generated the rebate Unfunded plans (exempt from ERISA trust requirements): Rebate must be used within 3 months of receipt, and either Distributed to participants; or Applied to reduce participants share of premiums 13

14 Non-ERISA Plans: Non-Federal Governmental Plans Rebate amounts proportionate to the premium contributions made by all subscribers must be used for the benefit of current participants. Permissible Options: Reduce the subsequent policy year premium contribution for all participants covered under any option offered under the group health plan; Reduce the subsequent policy year premium contribution for all participants covered under the policy for which the rebate is paid; or Distribute in cash to participants covered under the policy for which the rebate is paid. 14

15 Non-ERISA Plans: Church Plans Insurer must pay the entire rebate amount (in equal shares) to participants covered under the policy during 2013 Exception: May be distributed to group policyholder if policyholder provides written assurance that the rebates will be used for the benefit of current subscribers Must use one of methods permitted for governmental plans 15

16 Tax Implications of Distributing MLR Rebates Employee pre-tax premium contributions (e.g., 125 plans) Employee after-tax premium contributions 16

17 KEY ISSUES 17

18 ERISA and Tax Issues Employer ability to retain rebate Plan asset? Timing for when rebates must be distributed/applied Tax consequences of cash distributions W-2 reporting 18

19 Calculations Allocating rebates among participants Degree of flexibility Cash distribution versus other uses Document decision-making process Multiple benefit options under one plan 19

20 COBRA, Retirees and Employees Who Have Left the Company Terminated/Retired Employees Do rebates have to be shared with terminated/retired employees? What if retirees pay a higher share of premium than active employees? What if a retiree in 2013 is no longer a participant in 2014? COBRA Beneficiaries Do rebates have to be shared with participants on COBRA? What if someone on COBRA in 2013 is no longer a participant in the plan as of August 2014? 20

21 Benefit Enhancements and Wellness What is a benefit enhancement? Wellness program incentives 21

22 Can We Avoid Having to Allocate MLR Rebates? Yes but only if governing plan documents make clear that any MLR rebate belongs to the plan sponsor (e.g., the employer) and not the plan. Sample language: If any insurer pays dividends, rebates, demutualization proceeds, or similar payments, such amounts shall be paid to and considered the sole property of the Plan Sponsor to the extent permitted by law, unless the Plan Sponsor or the Employer elects to contribute such amounts to the Plan." Applies on a prospective basis only, i.e., only for rebates earned after plan language adopted Cigna 22

23 QUESTIONS 2014 Cigna 23

24 CLOSING REMARKS 2014 Cigna 24

25 FOR MORE INFORMATION Visit our website, InformedOnReform.com Download today s presentation under Reform News A replay will be available within a few days under Web Meetings 2014 Cigna 25

26 Cigna is a registered service mark, and the Tree of Life logo and GO YOU are service marks, of Cigna Intellectual Property, Inc., licensed for use by Cigna Corporation and its operating subsidiaries. All products and services are provided exclusively by such operating subsidiaries, including Connecticut General Life Insurance Company and Cigna Health and Life Insurance Company, and not by Cigna Corporation. All models are used for illustrative purposes only. 08/ Cigna. Some content provided under license.