Medical Loss Ratio Rebate Check

At this time of year employers may receive a Medical Loss Ratio rebate check.  This happens when the insurance company has not spent at least 80% of the annual premiums on medical charges.  When an employer receives a rebate, a letter is mailed to each employee informing them a rebate is being issued to their employer. 

There is a lot of confusion out there regarding the rebates and how they should be handled.  The federal government gives employers 3 choices of how to handle the rebates.  These 3 choices only apply when the employee is paying a share of the premium.  An employer can 1) rebate the employee’s share of the of the rate back to the employee, 2) apply the rebate against rate increases so that employees do not see their rates go up or 3) apply the rebate against a better plan. Options 2 & 3 are generally more desirable than option 1, because health insurance premiums are tax deductible. If the rebate is refunded to an employee as direct income, it becomes taxable.

An employee’s share of a rebate looks like this: The employer gets a $1,000 rebate and their monthly bill is $10,000.  An employee pays 10% of his or her $500 monthly premium, .  The employee would receive a $5 refund, because his/her share of the premium is .5% of the total bill, there for he or she is eligible to receive .5% of the rebate.  

We hope this offers solutions to the ML Rebate check in layman’s terms.