Under the Affordable Care Act (ACA), in 2012 consumers anticipate the return of an estimated $1 billion in rebates from health insurance issuers (issuers).
Commonly referred to as the “80/20 provision” of the ACA, the regulations governing Medical Loss Ratio (MLR) rebates appear in Title 45 of the Code of Federal Regulations, Part 158. The minimum MLR (45 C.F.R. § 158.210) applies as follows:
- Large group market: For all policies issued in this market during the MLR reporting year, an issuer must provide a rebate to enrollees if the issuer has an MLR of less than 85% (subject to adjustments as discussed below).
- Small group market and individual market: For all policies issued in these markets during the MLR reporting year, an issuer must provide a rebate to enrollees if the issuer has an MLR of less than 80% (also subject to certain adjustments).
States, however, retain the option to set a higher MLR, provided the State ensures adequate participation by health insurance issuers, competition in that State’s health insurance market, and value for consumers to ensure that premiums are used for clinical services and quality improvements. (45 C.F.R. § 158.211.)
While there are specific requirements relating to the aggregation of data in calculating an issuer’s MLR (45 C.F.R. § 158.220), generally an issuer’s MLR is: The ratio of the issuer’s incurred claims plus the issuer’s expenditures for activities that improve health care quality (the numerator) to the issuer’s premium revenue, less any Federal and State taxes as well as licensing and regulatory fees (the denominator).
The numerator of the MLR for 2012 may also include any qualified rebate paid for the 2011 MLR reporting year if the 2012 MLR reporting year is insufficient. Likewise, the numerator of the MLR for 2013 may include any rebate paid for the 2011 MLR reporting year or the 2012 MLR reporting year. In certain instances, the numerator of the MLR for certain policies may be adjusted to reflect the total of the incurred claims and expenditures for activities that improve health care quality, in which case the numerator is multiplied by an amount (ranging from between 1.15 and 2.00) based upon specific criteria. (45 C.F.R. § 158.221.)
The issuer’s MLR is based on its credible experience. Determination of this credibility is based upon the number of life-years covered by the issuer. Life-years means the total number of months of coverage for enrollees whose premiums and claims experience are included in the issuer’s report to the U.S. Department of Health and Human Services (HHS), divided by 12. An MLR is fully credible if it is based on the experience of 75,000 or more life-years, partially credible if it is based on the experience of life-years between 1,000 and 75,000, and non-credible if it is based on the experience of less than 1,000 life-years. (45. C.F.R. § 158.230.) If an issuer’s MLR is non-credible, it must meet or exceed the applicable minimum percentage set forth above. Regulations also provide for calculating certain credibility adjustments as appropriate. (45 C.F.R. § 158.232.)
For each MLR reporting year, an issuer must provide a rebate to each enrollee (defined as the subscriber, policyholder and/or government entity that paid the premium for health care coverage during the respect MLR reporting year) if the issuer’s MLR does not meet or exceed the minimum percentage as set forth above. For each MLR reporting year, an issuer must rebate to the enrollee the total amount of the premium revenue received by the issuer from the enrollee (after subtracting Federal and State taxes and licensing and regulatory fees) multiplied by the difference between the issuer’s required MLR and its actual MLR.
Federal regulations provide the following example:
“[A]n issuer must rebate a pro rata portion of premium revenue if it does not meet an 80 percent MLR for the small group market in a State that has not set a higher MLR. If an issuer has a 75 percent MLR for the coverage it offers in the small group market in a State that has not set a higher MLR, the issuer must rebate 5 percent of the premium paid by or on behalf of the enrollee for the MLR reporting year after subtracting premium and subtracting taxes and fees. . . . In this example, an enrollee may have paid $2,000 in premiums for the MLR reporting year. If the Federal and State taxes and licensing and regulatory fees that may be excluded from premium revenue . . . are $150 for a premium of $2,000, then the issuer would subtract $150 from premium revenue, for a base of $1,850 in premium. The enrollee would be entitled to a rebate of 5 percent of $1,850, or $92.50.” (45 C.F.R. § 158.240(c)(2).)
Rebates are due by August 1 following the end of the MLR reporting year. If an issuer fails to pay the rebate on time, enrollees are entitled to interest on the total amount of the rebate at the greater of: (a) the current Federal Reserve Board lending rate; or (b) ten percent annually. Issuers must also make a good faith effort to locate and deliver to an enrollee any rebate that is due.
Issuers have limited flexibility in the form of rebates, including a lump-sum check or lump-sum reimbursement to a credit or debit card (if the same card was used to pay for the premium). (45 C.F.R. § 158.241.) Different obligations apply to issuers when providing rebates to enrollees in the individual market as well as large and small group markets. (45 C.F.R. § 158.242.)
An issuer is not required to provide a rebate to an enrollee based upon the premium that enrollee paid in certain circumstances, including if the total rebate owed to a policyholder and the subscribers combined is less than $20 for a given MLR reporting year, or if the total rebate owed to each subscriber is less than $5. The same $5 threshold applies in the individual market. Notwithstanding, an issuer must aggregate and distribute any rebates not provided as set forth above to increase the rebates provided to enrollees who receive rebates. Federal regulations provide the following example:
“[A]n issuer in the individual market has aggregated unpaid rebates totaling $2,000, and the issuer has 10,000 enrollees who are entitled to be provided a rebate above the minimum threshold for the applicable MLR reporting year. The $2,000 must be redistributed to the 10,000 and added on to their existing rebate amounts. The $2,000 is divided evenly among the 10,000 enrollees, so the issuer increases each enrollee’s rebate by $0.20.” (45 C.F.R. § 158.243(b)(2).)
Federal regulations also require that for each MLR reporting year, issuers provide each policyholder who receives a rebate and subscribers whose policyholders receives a rebate (or each subscriber who receives a rebate directly from an issuer), with certain information as directed by HHS (45 C.F.R. § 158.250.) In instances when issuers meet or exceed the MLR standard, they still must provide each policyholder and subscriber of a group health plan, as well as subscribers in the individual market, a notice with detailed, specific information in the form and appearance required by federal law. (45 C.F.R. § 158.251.).
Failure to comply with the requirements set forth above may subject an issuer to civil money penalties in the amount of $100 each day for each violation, in addition to the other penalties listed above, those set forth in 45 C.F.R. §§ 158.601-158.612, among others.