UNDERSTANDING AND DISTRIBUTING MLR REBATES
Insurance carriers must issue Medical Loss Ratio (MLR) rebates by September 30 when too much of the prior year’s premiums went to administrative costs or profit instead of claims and quality improvements. Employers who received MLR rebate checks will need to determine how much—if any—belongs to the plan and its participants.
How a rebate is treated depends on who paid the premiums:
- If the employer paid the full premium, the rebate is generally the employer’s to manage.
- If employees contributed to premiums—even partially—the corresponding percentage of the rebate is considered a plan asset governed by ERISA. Those funds must be used solely for the benefit of participants.
To determine the plan asset portion, employers should:
- Calculate the percentage of total premiums paid by employees (including COBRA, payroll deductions, and premiums paid under FMLA).
- Apply that percentage to the rebate amount.
If multiple plans are covered under the same insurer, rebates must be allocated proportionally unless the carrier breaks them out by plan option.
How Employers Can Use the Plan’s Share
When a portion of the rebate is considered a plan asset, there are two compliant options:
- Enhance plan benefits.
- Return funds to participants—either as a cash refund or a premium credit (“premium holiday”).
Most employers favor returning rebates to participants because benefit enhancements are difficult to implement with small or inconsistent rebate amounts.
Tax treatment depends on how participants originally paid their share:
- If premiums are paid on a pre-tax basis, rebate amounts are taxable income.
- If premiums are paid after tax, rebates are not taxable.
Timing
Employers should distribute any plan asset portion within 90 days of receiving the rebate.
Employers can generally limit distributions to current participants in the year the rebate is received. While former enrollees may technically be considered, the Department of Labor acknowledges it is usually impractical when the per-person amount is minimal.
Rebates can be divided evenly among eligible participants, if the method is reasonable and impartial.
Employer Considerations
Carriers must notify participants that a rebate was issued to the employer, but the notice does not specify amounts or distribution details. Employers are encouraged—though not required—to communicate how and whether participants will receive any share. Setting expectations is helpful, as per-person amounts tend to be small.
Carriers are required to distribute MLR payments each year no later than September 30.
If your organization receives a rebate, determine how much of the rebate qualifies as plan assets and decide how those funds will be allocated. Because these assets may fall under ERISA rules, employers must follow specific guidelines. In most situations, any plan-related portion of the rebate must be disbursed within 90 days of receipt.
PREPARE FOR GAG CLAUSE PROHIBITION ATTESTATIONS
Under the Consolidated Appropriations Act of 2021 (CAA), group health plans and insurers may not enter into agreements with providers, third-party administrators (TPAs), or other vendors that restrict access to cost or quality-of-care information—often referred to as “gag clauses.”
To demonstrate compliance, plans must file an annual attestation with the Centers for Medicare and Medicaid Services (CMS) by December 31, 2025.
For 2025, CMS has not announced any changes to the submission process or requirements.
The rule applies broadly to:
- Fully insured and self-funded plans
- Grandfathered and grandmothered plans
- ERISA and non-ERISA plans
It does not apply to excepted benefits, retiree-only plans, or account-based arrangements such as HRAs or FSAs.
Employer Considerations
- Confirm that your plan documents and agreements do not contain gag clauses.
- Coordinate with your carrier, TPA, or consultant to ensure timely completion of the attestation.
