1. What is Medical Loss Ratio (MLR)?

Beginning In 2011 the Affordable Care Act (ACA) required health insurers to spend a minimum percentage of the premiums they collect every calendar year on healthcare services and certain quality improvement activities for their members. This percentage is called the Medical Loss Ratio (MLR).

2. Does the MLR requirement apply to all plans?

No. The minimum MLR requirement applies only to insured (risk) health plans. The MLR rules do not apply to self-insured (non-risk or ASO) accounts.

3. What is required under the minimum MLR provision?

MLR is calculated for an insurer’s entire book of business within each state in which the insurer does business. MLR is not calculated under the federal rules for each individual employer group, individual insurance product, or subscriber. MLR is calculated for the following market segments:

  • Large Group Market (51+ employees) – Generally, insurers must spend at least 85 cents of every premium dollar they receive on health services and health quality initiatives.
  • Small Group Market (2-50 employees) – Generally, insurers must spend at least 80 cents of every premium dollar on health services and health quality initiatives.
  • Individual Market – Generally, insurers must spend at least 80 cents of every premium dollar on health services and health quality initiatives.

4. Does the MLR effectively control premiums?

Minimum MLR requirements will not affect or control rising healthcare costs, the underlying cause of higher premiums. Ultimately, meaningful steps must be taken to control rising medical costs by:

  • Fundamentally changing how healthcare is delivered,
  • Placing greater emphasis on preventive/primary care and government action to eliminate preventable errors, infections and complications, and
  • Providing incentives that reward providers for achieving quality, cost-effective outcomes

5. How are rebates calculated?

The U.S. Department of Health and Human Services (HHS) has issued detailed instructions to health insurers for calculating MLR rebates. In its simplest form, MLR is calculated by taking the amount spent on medical claims and qualified health quality initiatives and dividing it by the premiums collected, minus certain federal and state taxes and fees.

6. What is a health quality initiative (QI)?

Insurers may include in the MLR calculation their costs for certain quality initiatives designed to improve the health of their members. If included, these costs would increase an insurer’s MLR. Examples include case management services by a nurse and wellness activities (such as our Kick the Nic program). Insurers can also include spending to:

  • Improve the health of members,
  • Prevent hospital readmissions,
  • Improve patient safety and reduce medical errors,
  • Modify member behavior through wellness and health promotion activities, and
  • Develop healthcare data used to improve quality, transparency and outcomes – such as incentive payments to providers in support of health improvement activities.

7. When are rebates determined?

Final determinations on rebates — to whom and how much — must be made by June of each year.

8. When will rebates be paid?

Any rebates issued must be paid to eligible subscribers or employer groups by August 1 each year. 

9. Do all insurers pay rebates?

No. Some insurers will owe rebates in one or more market segments, while others may not.

10. Why would insurers seek to increase premiums if they paid rebates?

Premium increases are driven primarily by the underlying costs of providing medical care, including increases in both the prices of medical services – hospital stays, doctor visits, prescription drugs, etc. – and how much those services are used. In setting future premiums, insurers price their products to cover their actual costs and estimated costs of future medical claims, reflecting the unique circumstances of their particular marketplace and enrollment profiles. Avoiding the need to pay rebates is just one element in the complex task of setting future premiums.

11. How large is the typical rebate?

Rebates vary by product, state and market segment; there is no “typical” rebate.

12. How will groups and subscribers know if they will receive a rebate?

All eligible employer groups and subscribers will be notified by mail by August 1.

  • Eligible individual plan subscribers will receive rebate checks directly.
  • Rebates for subscribers who are part of small and large group accounts will be paid to their employer (with certain exceptions).

13. Do I need to do anything to receive my rebate?

If you are eligible to receive a rebate, no action is required. Eligible subscribers with individual plans will receive rebate checks directly. For group accounts, rebate checks will be sent to the employer, in most cases. Under the law, the rebates are to be used for the benefit of the health plan’s subscribers (e.g., covered employees).

14. Can rebate-eligible individuals and employer groups that dropped their coverage still receive rebates for the time they were covered?

Yes. Both employer groups and individual plan subscribers who terminated their coverage can receive rebates for that portion of the calendar year that was used for calculating MLR.

15. What are the tax implications in receiving a rebate?

You should consult with your tax adviser as to whether there are any tax implications in receiving a rebate. QualChoice is not in the position to offer tax guidance.

16. What happens if my health plan changed during the calendar year?

Rebates vary depending on how much of the year you were covered by a rebate-eligible health plan.

17. My neighbor/friend/co-worker received a rebate. Why didn’t I?

Whether or not a rebate is paid and the amount of the rebate will differ, depending on the health plan, the state in which the plan was issued and who administered the plan.

18. Can the size of a rebate be appealed?

No. Rebates are calculated using specific criteria required under the law and federal regulation, ACA does not provide for an appeals process. The amounts used in calculating rebates (premiums, fees, etc.) were filed with and subject to review by federal and state regulators.

19. If I received a rebate this year, am I likely to receive a rebate again next year?

MLR rebates are calculated based on actual medical costs incurred, money spent on quality initiatives, premiums charged, and taxes and other fees paid – all of which change from year to year. Receiving a rebate one year will not increase the chances of receiving a rebate the next year.

20. Is my employer considered a large or small group?

Companies with 2-50 employees are classified as small group. Companies with 51+ employees are classified as large group for purposes of the MLR calculation.

The calculation is set by federal law. The calculation counts the average number of full-time equivalent employees that worked for the group during the prior calendar year. Included in this calculation are all full-time employees who worked throughout the year plus employees who worked either as a part-time worker, seasonal worker, owner, or full-time worker who was not employed the full year because they were either hired after January 1 or left during the year.

21. Are employer groups required to provide employment data annually?

Yes. At renewal each year, insurers will collect an employer’s average employee counts for the prior calendar year. These counts are needed to determine the proper market segment for the employer, so as to properly determine whether rebates are due under the MLR requirement.

22. If a rebate is sent to an employer, what is the employer required to do with it?

Under ACA, employers must use any rebate they receive to benefit those subscribers covered during the MLR reporting year on which the rebate is based. Generally, employers can use rebates to reduce future premiums or issue a payment to their employees, as required under the Employee Retirement Income Security Act of 1974 (ERISA).

23. How do employer groups determine how much rebate is due their employees?

Employer groups that decide to pay rebates directly to their employees (subscribers) should base their payment on the percentage of total premium that was paid by the employee, prorated for the period of time the employee was covered under the plan. For example, a full-time employee covered throughout the year who contributes 20% of the premium for coverage would receive 20% of the rebate due on the portion of the total premium (and rebate) paid.

24. Will subscribers of employer groups no longer in business still qualify for rebates?

Yes. If an insurer is unable to provide a former group’s rebate payment to the former group policyholder, rebate checks will be mailed to all subscribers on record for the period covered by the MLR calculation.