Monday, August 13, 2012

ACA rebate: you could get a check

In an effort to boost the overall popularity of the Affordable Care Act, the White House is touting the August mailing of a projected $1 billion in rebates that are required by the medical loss ratio provisions of the ACA.

Under the MLR provisions in the ACA, health insurance companies are now required to spend at least 80 percent (85 percent for large group plans) of premiums directly on health care, as opposed to advertising, administrative costs and executive salaries. Companies not meeting this requirement were required to send rebates to customers by August 1.

A White House e-mail, sent from and captioned "Did you get your check," states that "nearly 13 million Americans will receive more than $1 billion from insurance companies this summer."

Group plan participants: don't get your hopes up. "There may be many employees who are expecting to receive a rebate check in the near future, but will receive nothing in hand," Garrett Fenton, Miller & Chevalier Chartered, Washington, D.C., told CCH. With respect to group health insurance coverage, even where an employer receives a rebate check from its insurer, that does not necessarily mean the employer will pass through the rebate directly to its employees, Fenton observed. He added, “In the context of ERISA plans, Department of Labor guidance provides employers with some discretion as to how to use or dispose of their MLR rebates, as long as they ‘act prudently, solely in the interest of the plan participants and beneficiaries, and in accordance with the terms of the plan.’”

And, of course, if you do get a rebate, you have to consider potential tax consequences.

In April 2012, the IRS posted FAQs addressing the federal tax consequences of MLR rebates. The FAQs explain that rebates are generally taxable if the individual policyholder previously deducted them on 2011 Form 1040, either on Schedule A or on line 29 as a self-employed individual. Rebates are also taxable if previously pre-tax premium payments are refunded to an employee participating in a group health plan, whether in a check from the insurance company, in a check paid through the plan’s administrator, or in the form of a premium reduction for the current 2012 year. The MLR rebates in those cases are considered a return to the employee of part of untaxed compensation that is no longer being used to pay for health insurance. MLR rebates are not taxable in cases of 2012 premium reductions based on 2011 premiums that had been paid on an after-tax basis. In such cases, the MLR rebate is considered a purchase price adjustment that reduces the cost of the participant’s 2012 insurance premiums.


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