By Ilyse Schuman © Littler Mendelson
On April 20, 2012, the federal Centers for Medicare & Medicaid Services (CMS) issued further guidance on the medical loss ratio (MLR) requirement under the Patient Protection and Affordable Care Act. The health care law mandates that health insurers, depending on the size of the insurance market, spend 80 to 85 percent of premium revenue on reimbursement for clinical services and activities that improve health care quality; those that are noncompliant must provide a rebate to their enrollees. The law imposes certain reporting requirements for insurers. Final regulations implementing the MLR requirement, including its application to so-called "mini-med" plans and distribution of rebates to enrollees in group health plans, were issued in December 2011. [See the SHRM Online article “HHS Issues Rules on Medical Loss Ratio Requirement.”]
[Update: A subsequent final rule on computation of the medical loss ratio was published in the Federal Register on Jan. 7, 2014.]
The new technical guidance, which is in question-and-answer format, clarifies that the MLR reporting and rebate requirements are applicable for health insurance issuers offering group or individual health insurance coverage only. These requirements are not applicable to self-funded plans.
As for employer groups of one, the guidance explains that “where a sole proprietor and/or a spouse-employee are the only enrolled employees, the health plan would not be considered to be a group health plan.” The guidance explains further, however, that if “a sole proprietor enrolls a nonspouse employee, the experience of that plan is part of the small group market for MLR purposes. Even if the only enrollee is an employee who is not an owner or spouse, the plan is part of the small group market for MLR purposes.”
Another question asks what method should be used in counting employees to be covered under a group policy that does not cover all employees. In response, the guidance states that “at the time of sale, issuers should make every attempt to accurately count the number of employees employed by the group policyholder so as to accurately categorize the group as belonging in the small or large group market.” In certain circumstances, however—such as when a policyholder does not make the policy available in all states in which it does business—it is more difficult to ascertain market size. In such a situation, the guidance explains, “the issuer may determine the group size for MLR reporting purposes and the minimum MLR standard based on the information available to the issuer.”
In terms of reporting MLR data for individual or nongroup association policies, the Q&A explains that issuers should report such data “in the state where the individual resides at the time the certificate of coverage is issued.”
In response to a question about whether “premium holidays” are permissible in lieu of providing rebates if an issuer finds that its MLR is lower than the standard required, the guidance explains that this is a state regulatory issue not addressed by the federal MLR regulations.
The guidance notes that insurance exchange user fees “should be included in the licensing and regulatory fees that are subtracted from premiums in the MLR calculations.”
Finally, the Q&A guidance lists the conditions that must be met before an issuer may provide MLR rebates in the form of a prepaid debit card.
Ilyse Schuman is a shareholder in the Washington, D.C., office of Littler Mendelson. She provides strategic counsel and representation to clients on a broad array of workplace issues and developments in Congress and executive branch federal agencies.
© 2012 Littler Mendelson. All rights reserved. Republished with permission.
Employers Expected to Receive Millions in Health Insurance Rebates, SHRM Online Benefits Discipline, May 2012
HHS Issues Rules on Medical Loss Ratio Requirement, SHRM Online Benefits Discipline, December 2011
Is Self-Insurance for You?, HR Magazine, May 2011
SHRM Online Benefits DisciplineSHRM Online Health Care Reform Resource Page