What is the Medical Loss Ratio Provision?
When the Affordable Care Act became law in 2010, with it came many provisions. One provision requires insurers to report plan costs for the purpose of calculating the insurers' medical loss ratio (MLR). The MLR can be described as the percentage of insurance premium dollars spent on reimbursement for clinical services and activities to improve health care quality.
Insurers that provide coverage for large groups must spend at least 85% of premium dollars collected on claims and activities to improve health care quality for groups considered to be “large.” (Individual and small group insurers must spend at least 80% of premium dollars on claims and activities to improve health care quality.) The remaining 15% can be used by the insurer for administrative expenses, sales, advertising and other non-claims items.
Beginning August 2012, health insurers must provide rebates to employers if their medical loss ratio does not meet the minimum standards for a given plan year.
What is considered to be a "large group?"
For MLR purposes, currently the size of the employer is defined by the state. Today in Pennsylvania, “small group” is defined as 2–50 eligible employees and “large group” is defined as 51 or more eligible employees. However, the actual “counting” of the employees for MLR purposes is defined by the federal law, which requires you to use the average number of total employees for the previous calendar year, rather than eligible employees.
- The term "large employer" means an employer who employed an average of at least 51 total employees on business days during the preceding calendar year, and who employs at least 2 employees on the first day of the plan year.
- The term "small employer" means an employer who employed an average of at least 2, but not more than 50, total employees on business days during the preceding calendar year, and who employs at least 2 employees on the first day of the plan year.
Please be aware these definitions may cause some groups that are typically rated as small groups to be classified as large groups for the MLR rebate calculation.
Example: A restaurant that employs 20 full-time employees but has 40 part-time wait and host staff would be classified as a large group for MLR purposes, according to the federal definition, because it is a group that employs at least 51 total employees, regardless of eligibility, throughout the year.
Why the rebate?
Just like any business, Blue Cross of Northeastern Pennsylvania needs to run its business as efficiently as possible while delivering the services that you and your clients have come to expect and deserve. To be able to deliver quality services at the most cost-effective price, it is imperative that we run our business as close to the 85% MLR standard as possible. Knowing of this provision, we work diligently to do that very thing. While we came very close to the 85% MLR target, First Priority Life fell just slightly below it, at 84.6%.
What do I have to do with the rebate?
The Medical Loss Ratio Provision requires Blue Cross of Northeastern Pennsylvania to offer a rebate to the “large groups” with First Priority Life coverage. The law further requires that most employers then distribute the rebate in 1 of 2 ways:
- Reduce premiums for the upcoming year, or
- Provide a cash rebate to employees or subscribers that were covered by and contributed to the health insurance plan on which the rebate is based.
For general information about your client's rights regarding the rebate, you may contact the Department of Labor’s Employee Benefits Security Administration at 1.866.444.EBSA (3272) or review the Department’s technical guidance on this issue on its web site at http://www.dol.gov/ebsa/newsroom/tr11-04.html.
How should your client distribute the rebate to their employees?
We are here to make this process as easy as possible. If you received a rebate and need help calculating either the amount due to each employee or the amount by which to reduce each employee’s premium, use this Medical Loss Ratio Rebate Calculator. If you have any questions on how to use the Medical Loss Ratio Rebate Calculator, call your client's account manager, weekdays, between 8 a.m. and 5 p.m.