HHS Issues Final Rule Addressing Matters Related To Affordable Care Act's Medical Loss Ratio Requirements; DOL Issues Guidance On Rebates For Group Health Plans

The Department of Health and Human Services' Centers for Medicare & Medicaid Services (HHS) has issued a final rule1 (Final Rule) regarding the Affordable Care Act's medical loss ratio (MLR) requirements. The MLR requirement is intended to reduce the portion of consumers' premium dollars that health insurance issuers spend on administrative costs and profits. Specifically, the new health care law mandates that health insurance companies in the individual and small group markets are required to spend at least 80% of premium dollars on medical care and health care quality improvement. In the large group market, health insurance issuers are required to spend at least 85% of premium dollars on medical care and health care quality improvement. If they fail to do so, health insurers must rebate the difference to their customers starting in 2012.

HHS published interim final regulations on the MLR requirement on December 1, 2010.2 Most notably, the Final Rule changes the process for distributing rebates to enrollees in group health plans and requires issuers to provide notice about the rebate to consumers. The Department of Labor (DOL) simultaneously published a technical release3 providing direction to employer-sponsored health plans governed by the Employee Retirement Income Security Act (ERISA) on how to handle the rebates from insurers who fail to meet MLR minimum standards. In addition, the Final Rule modifies the MLR calculation for "mini-med" and expatriate health plans and the treatment of ICD-10 conversion costs, fraud reduction expenses and community benefit expenditures.

Rebates to Enrollees in Group Health Plans

The interim final rule directed issuers in the large and small group markets that have not met the applicable MLR standard to provide any owed rebate to the policyholder and each subscriber, generally the employees, in amounts proportionate to the amount of premium each paid. Rebates are based upon aggregated market data in each state and not upon a particular group health plan's experience. The interim final rule also allowed an issuer to enter into an agreement with the group policyholder to distribute the rebates on behalf of the issuer if the policyholder agrees to distribute it proportionately as directed and provide detailed documentation regarding the distribution to each subscriber. However, under the interim final rule, the issuer would remain liable for complying with all of its obligations under the statute and for maintaining records that demonstrate rebates were provided accurately to individual enrollees.

HHS notes that many commenters expressed significant concern about the logistical and tax problems inherent in the interim final rule's mechanism for providing rebates in the group markets. Disbursing rebates directly to subscribers would...

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