With health care reform's medical loss ratio rebate reporting starting this month, there is still much uncertainty among employers about how the rebates will work, leading to an opportunity for brokers to fill that all-important trusted adviser role.

The Patient Protection and Affordable Care Act requires that insurers spend a certain percentage of premium dollars - 85% for large group plans and 80% for small and individual market - on health care related costs.

If an insurer does not meet the MLR standard, they are required to provide an annual rebate to each enrollee.

According to an anlysis by the Kaiser Family Foundation, consumers and businesses are expected to receive $1.3 billion overall. That includes $541 million in the larger employer market, $377 million in the small business market and $426 million for those buying insurance on their own, according to Kaiser. But it is unclear what an employer, who would receive the entire rebate, would do with the money - which could be just cents on the dollar if distributed to each plan participant.

Some question if there will be any rebate at all. According to a Government Accountably Office study, at least 64% of all credible insurers in 2010 would have met or exceeded the MLR standards.


Changing regulations

The whole MLR process "is very complicated," says Rich Stover, a principal in Buck Consultants' Secaucus, N.J., office. "Because the rebates are not paid yet, we will learn a lot as the process unfolds."

Adding to the complexity is the fact that the regulations have changed multiple times since first proposed in the health care reform bill.

At first, any rebate would have been issued based on who paid the premium dollar. For example, if the premium was $100, and it was 50/50 cost sharing with an employer, a $100 rebate would have been split 50/50, with the insurer responsible for getting half to the employer and half to the employee, or plan participant, according to Jessica Waltman, SVP of government affairs at the National Association of Health Underwriters.

That raised concern for carriers, Waltman says, because they typically have no idea what the cost sharing is between employee and employer, and while the employer would have been required to split the rebate, any problems would have fallen on the insurer.

Under the final rule adopted in December, insurers provide the rebate to the policyholder, which is typically the employer.

The rules also say that the plan can take the rebate and either refund the money to plan participants, or use it for the "betterment of the plan," which may include lowering premiums the next year or putting in a new service.

"That was a welcome thing because it eliminated this administrative hassle," Waltman says.

While reporting to employers on expected rebate amounts begins this month, insurers that do not meet the 80% or 85% threshold do not have to begin issuing the rebates until August.

According to the Kaiser Family Foundation, rebates are expected to be issued to 28% of consumers in the small group market and 19% of those in the large group market, with the numbers dependent on the state in which their employer is based.

Kaiser reports the average rebate for the small group enrollee is expected to be $76.37 annually, with Alaska having the highest rebate per enrollee annually ($517), followed by Alabama ($203). In the large group, 125 insurers expect to issue rebates to 7.5 million enrollees averaging $72.31 per enrollee.

While the rebates are not "particularly large in many instances," they will be among some of the most tangible effects of PPACA felt by consumers before the law goes into effect, according to Kaiser.

"This study shows that asking insurance companies to put more of their premium dollar toward patient care rather than administration and profits is not only popular but also effective," adds Kaiser President and CEO Drew Altman, in a statement. "There are tangible benefits for consumers and employers."

Because it is unclear what employers will do with the rebates, Waltman says the actual number of Americans that receive cash in hand of any significance will be small.


What will employers do?

According to a Labor Department Technical Release, the employer when deciding how to allocate the refund should "properly weigh the costs to the plan and the ultimate plan benefit as well as the competing interests of participants or classes of participants."

While the guidance may be confusing, analysts say, most employers have not made decisions at this point on what to do with the rebates.

"I don't think [any employers] have made any decisions" about what to do with the rebates they will receive, says Kathryn Backich, SVP and national health care practice leader at Segal Co.

Waltman agrees and says after speaking with NAHU members across the country that they aren't expecting a great sum of money, either.

Yet, Backich points to the demutualization process in the 1990s where insurance companies went from a mutual company to a public company and had to issue refunds based on their shares to employers. Most employers at that time gave premium holidays. "That's the easiest thing to do," Backich says.

"I would imagine that would be a common thing to do now," she adds. "The only problem [is] I don't think it's going to be very much money."

Buck's Stover says while the rebates could be used for benefit enhancement by telling the insurance company, "Don't give me money back ... give me benefits enhancement, lower our copay," he does not see that happening much.

Instead, he sees most employers just writing a check to their employees with the amount.


Broker's help

Simply put, employers don't have time to follow all of these regulations and track these things like brokers and consultants do, says Bakich.

Stover adds that many brokers are not even thinking about how the MLRs will affect them yet, but they - along with employers - should be awake to the reality of it.

"In July or August you will get a check and you need to start thinking now, 'What process do I have in place?'" he says.

But, Bakich says the first thing to do as a broker is amp down expectations, as most clients won't have to deal with this. If clients do receive notice of a rebate, be able to walk them through it, she says, explaining what portion of the money has to be returned and how they can do it.

Waltman adds that brokers need to start familiarizing themselves with the rules now in order to help employers answer the questions they are receiving. Then, if their clients receive a rebate, they will know how to use it properly under the law.

"I'm sure brokers will be called upon to provide that advice," she says.

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