One of the many provisions of the Patient Protection and Affordable Care Act, also referred to as the Healthcare Reform Legislation, provides that health insurers must spend a certain portion of the premiums they receive on clinical services and health care quality-improving activities. If an insurer spends less on such services and activities than the pre-established level, the difference must be refunded to the insurer’s policyholders in the form of rebates. The first such rebates were recently issued to policyholders nationwide.
In connection with such rebates, an issue arises if the policyholder is an employer and the policy was obtained to cover employees under the company’s group health plan. For example, an employer may wonder if it is entitled to keep the rebate. The answer to this question depends in large part on the health plan’s governing documents. If the plan’s governing documents clearly address the treatment of such rebates and allow them to be retained by the employer, then guidance recently issued by the US Department of Labor (the DOL) indicates that the plan’s provisions can be followed. However, where the plan is silent on such issues—as is often the case when insurance is purchased for employees and the employer relies on the insurance contract as the plan document—the DOL has found that the fiduciary requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA), may dictate the steps that should be followed to ensure that the rebate is treated appropriately.
DOL Technical Release 2011-04 discusses many situations that may arise in respect of rebates received in connection with a plan. According to the DOL, issues to consider include the extent to which premiums are paid by the employer or the employee, the amount of the rebate and the administrative and financial hurdles that will need to be addressed in taking any particular course of action. In the end, the safest thing for employers to do may be to pass along the rebate to employees (in the form of a premium holiday or a taxable payment). However, sharing with employees may not be appropriate in every case. For example, sharing may not be required in cases where the net amount to be received by each employee would be exceeded by the associated administrative costs.
In the end, employers should consider how it will address future rebates. In addition, if there is a desire to possibly keep such rebates (rather than share with employees), plan documents should be updated prior to the beginning of the next plan year.
DOL Technical Release 2011-04 can be found here.