What You Are Required to do if You Receive a Health Insurance Rebate

By Anita Lawrence, CPA, Manager, Audit and Other Assurance Services Group | Brandon Cook, CPA, Partner, Tax Services Group

You should have received a letter from your insurer towards the end of June letting you know whether or not you should expect a refund from your insurance company. Insurers are now required to let you know how much they spent on medical care in relation to premiums collected.

Part of the Health Care Law is a provision entitled the Affordable Care Act that requires health insurance issuers to report on spending of the premium dollars they receive, or medical loss ratio standards (MLR). Insurance issuers are required to provide rebates to enrollees when the spending for services in relation to premiums charged is less than the MLR standards established by the Act.

The MLR, also known as the 80/20 rule, under the Affordable Care Act stipulates insurers must use 80% of premium dollars (85% for large insured groups) collected on health related expenses or refund the difference to consumers.

People who have individual insurance policies will receive the rebate directly from the insurer through either a rebate check or a reimbursement to the account (credit card, for example) with which your premium was paid.

Rebates for group plans will go to the employer, but some of the money may be required to be passed along to employees or used in a way that benefits employees in the future.

Employees are entitled to the same share of the rebate as they pay for health insurance. If an employer pays 80 percent of the premium and the worker pays 20 percent, then the rebate should be split 80/20 with a rebate check or payment provided to the employee.

As an alternative, the employer can decide to use the rebate to reduce future premiums or add additional benefits.

Most large employers nationwide are excluded from the rebates because they pay their own health care claims and use insurance companies to administer the plans. These ‘self-insured plans’ already have low overhead costs by design. Medicare beneficiaries are also not entitled to rebates.

A new tool launched by Health and Human Services at HealthCare.gov allows you to find out the average rebate your insurer is required to pay policyholders under the 80/20 rule.