Saturday, September 28, 2013
Have you ever dreamed of receiving a refund check from your group health carrier! It may happen soon, if not already.
The Affordable Care Act (ACA) requires insures to rebate premiums if they do not meet the minimum guidelines for cost allocation. Under the ACA an insurer must utilize 80% of premiums received on small accounts or individual policies for the payment of claims or quality improvement activities. Insures of large groups must utilize 85% of premiums for claims or quality improvements. These regulations went into effect in 2011 and for the last two years many companies have received rebates on their premiums because the insurer did not meet the minimum standard.
Here are the basic rules.
How are these funds returned to the employees?The general rule is that the funds must be returned to the individuals insured. The amount of the rebate can be proportional to the amount of premium paid. As an example if the employer pays 80% of the premium and the employee pays 20% then the rebate could be divided along the lines of payment.
Who should receive the rebate?The guidance suggests that everyone who has been a part of the plan for the previous year should be included in the rebate. However the guidance allows for an exception if the process of finding and distributing to former employees will be overly burdensome, meaning the cost to do so would be more than the rebate. In this situation the employer may elect a ?reasonable, fair and objective? method to distribute the rebate to the current insured?s.
Is the rebate taxable?The issue of taxation is dependent on how the original premiums were paid. If the original premiums were paid by the employee on a pretax basis, under a Section 125 plan, any cash paid to the employee would be taxable income. The employer also has the option to reduce the current insurance premium payments instead of giving a cash rebate. This would have the same effect since the employee?s taxable income would increase an equal amount.
If the premiums were paid on an after tax basis any rebates paid to the employee would not be taxable.
Do employers have a time limit on when to pay the rebates?The guidance states that employers must allocate any rebates within 90 days.
If you have questions regarding the distribution of Medical Loss Ratio rebates contact Gary at 615-542-1919 or
gary@IlluminareGroupInc.com.
Gary Garner
IRS CIRCULAR 230 — DISCLOSURE NOTICE: IRS Circular 230 regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding correspondence and/or any attachment is a written tax advice communication, it is not a full ?covered opinion?. Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed herein.