If an employer’s medical plan includes benefits that are insured or HMOs, the employer may receive a Medical Loss Ratio (“MLR”) rebate. The DOL has issued guidance on the use of MLR rebates, and failure to follow this guidance may result in a breach of fiduciary duties and penalties.

Note: This issue is a concern for employers who sponsor insured health plans or HMOs.

Employers who sponsor only self-insured health plans are not affected and will not receive MLR rebates.


The Patient Protection and Affordable Care Act (“PPACA” or “health care reform”) places limits on the profits an insurer may make on insured coverage. If an insurer spends less than a specified percent of revenue on medical care and other permitted expenses (the MLR), the insurer is required to rebate the excess amount. Insurers are to issue the MLR rebates for the 2011 plan year by August 1, 2012. In addition, insurers are to send a notice to the employees covered under the plan that the insurer is issuing an MLR rebate. The Department of Health and Human Services (HHS) issued the main guidance on MLR rebates, including the requirement that notice be sent to the employees. 

DOL Guidance

The DOL has issued guidance for employers regarding how to handle MLR rebates. See Guidance on Rebates for Group Health Plans Paid Pursuant to the Medical Loss Ratio Requirements of the Public Health Service Act (available at http://www.dol.gov/ebsa/newsroom/tr11-04.html). The guidance states, “Decisions on how to apply or expend the plan's portion of a rebate are subject to ERISA's general standards of fiduciary conduct.”

Next Steps

An employer that receives an MLR rebate should consider consulting with an attorney to assure the proper use and allocation of the MLR rebate. In addition, the employer should consider how it will communicate its use and allocation to employees in its health plan.

Note: If an employer is a governmental or church entity that is not subject to ERISA, the employer should still review the HHS guidance regarding the use of the MLR rebates.