Group health plan sponsors and fiduciaries need to exercise care to properly handle any premium rebates, if any, received by from insurers to comply with the medical loss ratio rules enacted as part of the Patient Protection and Affordable Care Act (Affordable Care Act) to avoid violating the plan assets and other fiduciary responsibility rules of the Employee Retirement Income Security Act of 1974 (ERISA), according to Technical Release No. 2011-04, Technical Release on Fiduciary Requirements for Handling Medical Loss Ratio (MLR) Rebates (“Technical Release”) published December 2, 2011.
As amended by the Affordable Care, Section 2718 of the Public Health Service Act (PHSA) requires that health insurance issuers:
- Publicly report on major categories of spending of policyholder premium dollars, such as clinical services provided to enrollees and activities that will improve health care quality;
- Establishes medical loss ratio (MLR) standards for issuers; and
- Requires issuers to provide rebates to enrollees when their spending for the benefit of policyholders on reimbursement for clinical services and health care quality improving activities, in relation to the premiums charged (as adjusted for taxes), is less than the MLR standards.
Employers or other sponsors that are group policyholders on insurance contracts covered by the MLR rules are likely to receive any rebates due because Department of Health and Human Services (HHS) final regulations implementing these MLR requirements published December 7, 2011 require issuers to pay any MLR rebates “to the policyholder.”
In anticipation insurers’ payment of these rebates, the Employee Benefit Security Administration (EBSA) is cautioning employers and other ERISA-covered group health plan sponsors and plan fiduciaries that premium rebates received from an insurer pursuant to these HHS MLB regulations may be plan assets required to be handled in accordance with ERISA’s plan assets and other fiduciary responsibility rules.
In the December 2, 2011 Technical Release, EBSA reminds plan sponsors and fiduciaries that premium rebates distributed pursuant to the Affordable Care Act’s MLR standards with respect to a group health plan are likely to be plan assets protected by ERISA’s fiduciary responsibility rules. Accordingly, the Technical Release cautions that plan sponsors or other parties receiving or exercising discretion over the rebated amounts that are ERISA plan assets generally should see that rebated amounts are handled in accordance with the fiduciary responsibility and trust requirements generally applicable to ERISA plan assets.
Determination whether the premium rebate is a plan asset generally requires a careful evaluation of whether the plan has a beneficial interest in the rebate and certain other factors. According to the Technical Release, a distribution such as the rebate to a group health plan will be a plan asset if the plan has a beneficial interest in the distribution under ordinary notions of property rights. While the identity of the policyholder – the employer or other plan sponsor versus a trust or plan – is one important consideration, the Technical Release warns that this is not the only factor.
The Technical Release says the fact that the employer is the policyholder or the owner of the policy would not, by itself, indicate that the employer may retain the distributions. Rather, determining who is entitled to the distribution requires careful analysis of a broad range of factors including:
- The terms of the governing plan documents;
- The funding sources of the policy;
- The parties’ understandings and representations; and
- Other relevant facts and circumstances.
If the rebate is an ERISA plan asset, employers or others receiving a premium rebate payment and others with discretion over the use and handling of the rebate should take steps to ensure that they can demonstrate the rebate is handled and expended in accordance with ERISA’s fiduciary responsibility requirements. Among other things, this means that rebated amounts should be:
- Held in trust unless the plan fiduciaries verify that an exception applies;
- Used only for the exclusive purpose of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan;
- Handled in accordance with the fiduciary responsibility provisions of ERISA section 404 and the prohibited transaction provisions of ERISA section 406;
- Held in trust in accordance with ERISA section 403; and
- Not allowed to inure to the benefit of any employer.
The Technical Release reminds plan sponsors and administrators that if the rebate is a plan asset, decisions about and actions taken to deposit in trust, allocate, apply, spend and other aspects of handling the plan’s portion of a rebate generally are subject to ERISA’s general standards of fiduciary conduct, prohibited transaction and trust requirements. The Technical Release also provides guidance about allocation of the rebate under certain circumstances and certain other questions that are likely to arise in connection with the receipt of a rebate. Insurers, brokers, consultants and others working with employers or other plan sponsors, administrators, or fiduciaries who may receive a rebate or otherwise involved in making funding decisions also may want to discuss the guidance and other fiduciary responsibility rules with their clients to help promote understanding and compliance.
Because violations of ERISA’s fiduciary responsibility rules can create personal liability, employer and other plan sponsors, plan fiduciaries and others participating in decisions or administration of a rebate exercise care in dealing with any rebate. Many plan sponsors also may want to consider reviewing and tightening as warranted existing plan, trust, insurance policy, plan communications and other documentation to lower risks and promote desired characterization of rebates and other amounts paid into or with respect to their plans.
For Help or More Information
If you need help reviewing and updating, administering or defending your group health or other employee benefit, human resources, insurance, health care matters or related documents or practices or with other employee benefits, human resources, health care or insurance matters, please contact the author of this update, Cynthia Marcotte Stamer.
A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 24 years of work, advocacy, education and publications on leading health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters.
A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals. A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials about regulatory, investigatory or enforcement concerns.
Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations. She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications. You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer here.
If you found this update of interest, you also may be interested in reviewing some of the other updates and publications authored by Ms. Stamer available including:
- Group Health Plans & Insurer To Get More Time To Meet Affordable Care Act Summary of Benefits and Coverage Requirements
- CMS Final Medicare Rule Imposes Many Conditions On Access To Medicare Claims Data To Evaluate Providers & Suppliers
- OSHA Updates Safety Resources To Prevent Construction, Other “Top 10″ Exposures
- OSHA Silo Safety Citations Heads Up To Grain Operators To Manage Safety
- OSHA Updates Safety Resources To Prevent Construction, Other “Top 10″ Exposures
- EBSA Releases Collection of New M-1 and Other Guidance Impacting Multiple Employer Welfare Plans
- New Obama Administration Affirmative Action Guidance Highlights Organization’s Need To Tighten Nondiscrimination Practices
- Incentives To Get Employee Into Wellness Education Requires Legal Risk Management
- HR Key Player In Managing Rising Risk of Disability, Other Discrimination Suits Under Obama Administration Justice Department
- HHS Chides Insurer For “Excessive” Premium Increases After Affordable Care Act Rate Audit
- IRS U-Tube Video Discusses 2012 Flexible Benefit Plan Rule Change
- Employers Considering Using New IRS Voluntary Worker Classification Settlement Program To Resolve Payroll Tax Risks Must Also Manage Other Legal Exposures
- Participant Notification Added To Required Procedures For Church Plan Determination Letter Requests
- HHS Credits Affordable Care Act Adult Dependent Child Coverage Rule With Getting 1 Million Young Adults Health Coverage
- 2010 Webcast Series on Federal Employer Employment of Persons With Disabilities Planned
- EBSA Plans To Include Health Care Reform Compliance In Health Plan Audits Beginning In FY 2012; Disputes OIG Criticism Of ACA Enforcement Efforts
- New Labor Department Video Tries To Educate Young Workers About Benefits & Benefit Rights
- Employer Assistance and Resource Network Offers Free Webinars For Employers During October In Honor of Disability Employment Awareness Month on Thursdays in October from 2:00 – 2:30 p.m. Eastern Time. Topics will include Employer Preparedness to Include Veterans with Disabilities
- HHS Projects Medicare Advantage Enrollment Will Rise As Premiums Decline In 2012; Plans Face Increased Regulation & Enforcement
- HHS Credits Health Reform For Getting Health Coverage For Added 1 Million Young Adults
- 4th Circuit Rejects Two Challenges To Affordable Care Act Constitutionality
- Stamer Named Fellow In American College of Employee Benefits Counsel
- ABA TIPS Section Appoints Cynthia Marcotte Stamer Vice Chair of Employee Benefits General Committee
- Affordable Care Act To Require Health Plans Cover Contraception & Other Women’s Health Procedures In 2012
- Company Executives, Plan Sponsors & Others May Face Personal Liability When Others Defraud Plans or Mismanage Employee Benefit Plan Responsibilities
- EEOC Finalizes Updates To Disability Regulations In Response to ADA Amendments Act: Employers Should Manage Risks
- Employer Charged With Misclassifying & Underpaying Workers To Pay $754,578 FLSA Back pay Settlement
- HHS Imposes 1st HIPAA Privacy Civil Penalty of $4.3 Million
- NLRB Settlement Shows Care Necessary When Employers Use Social Networking & Other Policies Restricting Employee Communications
- Wage & Hour Law Settlements Highlight Rising Wage & Hour Risks of U.S. Employers
- OCR Requires Rhode Island DHS To Provide Translation, Other Services For Limited English, Other Language Impaired Accommodations
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THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS. ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.
©2011 Cynthia Marcotte Stamer, P.C. Non-exclusive license to republish granted to Solutions Law Press. All other rights reserved.