Yep, I know: you
waited and hoped the Supremes would make your life easier by ruling that the
Healthcare Reform Act was unconstitutional.
You haven’t done a thing to prepare.
The Court let you down. Now you
are slammed up against the impending deadlines and you realize that the future
election is AFTER some of these deadlines kick in. There’s no hope that you’ll get out of this
now. Uh Oh!! Don’t panic.
This week and in the coming weeks, I’ll list some of How-To’s for HR,
starting with the most pending deadlines.
We’ll get through this - - we always do.
August 2012
Rebates
The Patient Protection and Affordable Care Act (PPACA) – the
real name of the Healthcare Reform Act – calls for insurers (for our purposes,
that would mean insurance companies) to report their Medical Loss Ratios (MLR). If the insurer fails to achieve the stated
MLR, it must issue a rebate. The
first rebate is due August 2012. Getting
money doesn’t sound like a bad thing, but since we in HR are under the rules of
the IRS and the Department of Labor (which includes compliance with the
Employment Retirement Income Security Act of 1974 – ERISA), we need to make
sure we understand the consequences and have a game plan of what to do with the
funds.
Where did these funds come from?
A “loss ratio” is not a new term. Those of us in HR know the term from
discussing workers comp premiums with carriers or when a broker is trying to
explain why our health insurance rates went up. Basically, it is the ratio of premiums they
receive compared to what they have to pay out (medical care and quality
improvement). Since carriers DO work for
a profit, they are going to figure in the loss ratio and add a percentage for administrative
costs and profit in determining our premiums each year. Under PPACA, the carrier is supposed to
figure out the Medical Loss Ratio for a plan and determine the exact percentage
paid. For large groups of 100 employees
or more (50 or more in some states until 2016, then 100), if the MLR does not reach 85% or, for smaller plans if it does not
reach 80%, then a rebate must be given.
Who, what, when?
This rebate does NOT apply to self-funded plans. Employers with partially- or fully-insured
plans may or may not receive a refund.
It depends on the MLR and the manner in which the given state interprets
its calculation. The Kaiser Family
Foundation’s recent survey found that, nationwide, employers are expecting
rebates totaling $541 million in the large market and $377 in the small
market. This analysis will be ongoing,
but the first rebates should be arriving in August 2012.
If your employer purchased the insurance for the benefit of
the employees, then the rebate, if there is one, will go to the policy holder,
meaning the employer. Before you start
planning on using the rebate to buy an IPad – I have one little heads up for
you: The insurer is supposed to send a
letter to ALL subscribers in the group that a rebate is coming! That’s right!
All those employees who traditionally stand in your doorway, call you,
text you, and send you emails regarding every itty bitty thing will now have a good
reason to bug you with “Where’s my money?”
Who Gets to Keep the Money?
ERISA has lots of rules regarding “Plan Assets” but these
rules normally come into play with regards to retirement plans. We now have to expand our way of thinking
to include Plan Assets in our health insurance plan if we get a rebate. Basically, we all need to write a policy
regarding our medical plan and what to do if we have Plan Assets in the plan.
The DOL has provided some guidance with Technical Release
No. 2011-04 with regards to what to do with the money. The following is MY interpretation of
this. It is not verbatim and if you need
more clarification, I suggest you speak with your broker and/or attorney:
-If the employer paid 100% of the premium, then the rebate
goes to the employer and there are technically no “Plan Assets”; the employer
can do whatever it wants with the money (but wouldn’t it be cool to at least
have a little party or a cake or SOMETHING???)
-If the employees paid 100% of the premium, then the entire
rebate is considered Plan Assets.
-If the employer paid a stated portion and the employee paid
a stated portion, then the percentage that each party paid should be calculated
and the employer portion of the premium goes to the employer and the employee
percentage goes to “Plan Assets”.
-If the employer paid a fixed portion and the employee a
variable portion of the premium – figure out the percentage that the employees
paid for the relevant period. The rebate
is then divided proportionately, with the employer receiving its percentage and
the “Plan Assets” being the employee portion.
The reverse is true if the employer paid the variable portion and the
employee paid a fixed portion.
The above calculations should prove to be “reasonable, fair,
and objective” (RFO for short)
The guidelines in the Technical Release No. 2011-04 also
discuss the possible scenarios regarding distribution of the “Plan Assets” to
the employees. Things that should be
considered:
-Should the Plan Assets just go to our current insured
employees or all of the employees (even the terminated ones) who were covered
during the period of coverage?
-What would be the rebate per employee?
-What would be the administrative cost to pay back the
employees (or to find the terminated employees)?
-What would be the tax ramifications (more on this in a
minute)*?
The guidelines state that, unless you have policies to the
contrary, if it is determined that the cost of distributing shares of a rebate
to former employees is cost prohibitive (or approximately the cost of the
rebate), then it is permissible to allocate the rebate to current employees if
that can be done in a RFO fashion. Or
that it may be RFO to determine that, instead of issuing rebates in the form of
checks, it may be easier to put the Plan Assets toward future plan premiums to
offset the employee pay portion.
A few things to remember –
If you have multiple insurance policies through an insurer,
you should make sure you understand which policy had a rebate and make sure the
rebate benefits the employees insured under that policy.
*If you plan to hand out checks to your employees and former
employees regarding the rebate, remember it is taxable. If you plan to apply the rebate toward your
employees’ portion of the premium (called by some “premium holiday”), then you
do not have to charge the employee additional taxes. As most employers have a pre-tax plan for
employee-paid premiums (POP plans or cafeteria plans), the decrease in the pre-tax
premium paid would mean an increase in the taxable income, so the tax goes up anyway.
So What’s the Game Plan?
__ Speak with your finance department and others involved in
the decision-making process of what to do if you get a rebate. Explain that you may or may not be getting a
rebate, but that your company should at least go forward with creating a Policy
Statement for Plan Assets regarding your medical plans.
__ Write your Policy Statement. Be sure to consider what you will do with the
Plan Assets and consider previous employees, current employees and even future
employees (for example, are you going to let new employees get a portion of the
rebate even though they were not insured during the policy period that included
the rebate?) Make sure the policy
statement is “reasonable, fair, and objective.”
__ Speak to your insurance carrier representative to find
out if you are getting a rebate. If you
are, be prepared with a carefully written letter to your employees stating what
your policy is regarding the distribution of the rebate. Write this carefully allowing for as much
transparency as possible into your decision-making process.
__ When you receive your rebate, let your employees
know. Remind them what you intend to do
with the rebate. This is a good time to remind them how much
money the company has been contributing to their insurance all along. Turn this administrative exercise into a “Yea
Team” pep rally for your organization and its great benefits.
But then again, we’ll have more opportunity to let them know
just how much the employer contributes to their benefits when we meet next week
for Part 2 of this Blog. That will be
our discussion of Box 12 of our W-2’s. Until next time...
