Samuel J. Cordes & Associates
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Employers may be cheating employees out of medical benefit rebates

If you receive health care benefits provided by your employer, you should shortly be receiving a rebate as a result of the new Health Reform Act. If you do not, you should ask!

If your employer tells you it will be using the rebates from its health insurance carrier to offset the amount it pays for the coverage, you should contact a lawyer. Your employer is cheating you out of a benefit to which you are entitled.

Under the new Health Reform Act, the medical loss ratio (MLR) standards require insurance companies to spend a certain proportion of premium income on health care. In a large group, for every premium dollar received by an insurer, 85 cents of that dollar must be spent on paying medical claims, and/or undertaking wellness-related activities. In the small group market, the MLR ratio is slightly lower, at 80 cents for every premium dollar.

If an employer's health care provider did not meet the MLR standards for 2011, the issuer was required to issue a rebate by August 1, 2012. In most cases, the carriers are remitting MLR rebate checks directly to the employers, as provided for under the Health Reform Act.

The employers must then allocate the rebate appropriately among itself and the group health plan participants.

Those rebates do not belong to the employer, but rather, at least in part, are owned by the health plan participants.

In December 2011, the U.S. Department of Labor held that in the common situation where the employer is listed as the health insurance policyholder, and where employees are required to contribute toward the cost of their health insurance premiums, then the individual employees must receive part or all of the rebates. In other words, in most situations, the employer will not be able to retain the full rebate, but rather must allocate part or all of the rebate among individual plan participants.

In circumstances where the insurance policyholder is not the employer, but rather is the group health plan itself or its trust then the rule is even simpler: All of the MLR rebate would need to flow to plan participants, with no portion benefitting the employer. In general, plan assets must be held for the exclusive purpose of providing benefits to the plan participants and their beneficiaries and defraying reasonable expenses of administering the plan. As a result, the employer would have no interest in any portion of the rebate that is considered to be an ERISA plan asset. The DOL's guidance further provides that, pursuant to standards of fiduciary conduct, in situations where MLR rebates are attributable to employee premium contributions or otherwise considered to be plan assets, the rebates generally must be

either: • distributed to the participants;• used to reduce future participant premiums (e.g., a premium holiday); or• used toward benefit enhancements.

It is important to note that if plan asset rebate amounts are used to reduce premiums, such amounts should only be used to reduce the individual participant's premium contribution and may not be used to reduce the employer's contribution.

If your employer has not notified you that your health insurance premiums are reduced, that your benefits are enhanced, or provided you with a check, it is most likely cheating you. You should contact our office today at 412-567-5444.

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