Many small employers may get rebate checks as a result of the new federal medical loss ratio (MLR) rules, but they probably should wait before using the money to pay off their credit card bills or buy a trip to Disneyland.
Ed Fensholt, a regulatory analyst at Lockton Companies L.L.C., Kansas City, Mo., says the MLR rebate program likely will lead to complicated questions about who owns the rebate money and what plan sponsors can do with the rebate money that comes to them.
Congress included the MLR provision in the Patient Protection and Affordable Care Act of 2010 (PPACA) in an effort to make plans more efficient. Plans can set premiums at whatever level they want, but they must spend at least 85% of large group revenue and 80% of individual and small group revenue on health care and quality improvement efforts.
The MLR rules took effect in January, and the first round of MLR rebates could go out in August 2012, Fensholt says.
If a health plan is governed by the Employee Retirement Income Security Act (ERISA), and the plan or trust is the holder of the health insurance contract, "the insurance policy is an asset of the plan and all of the MLR refund is a plan asset," Fensholt warns.
He describes the following scenarios:
- If the employer is the contract holder, and plan documents say what happens to any refunds, the plan documents might control what happens.
- If the plan documents are silent about the rebate issue, and the employer pays all of the health insurance premiums directly, then the employer will probably get to keep all of the rebate
- If the plan documents are silent about rebates, and the employees pay 100% of the cost of the coverage, then the employees likely will get to keep all of the rebate money.
- If the plan documents are silent about rates, and the employer pays a fixed percentage of the cost of coverage and the employees pick up the rest of the tab, then employer will get some of the rebate money and the employees will get the rest of the rebate money.
If part or all of a rebate becomes a health plan asset, the plan's fiduciaries will "owe an obligation of prudence and fidelity to the plan's participants," Fensholt says.
Some fiduciaries may decide to let the plan participants split the rebate money, but others may reinvest the rebate money in the plan, he says.
In many cases, he says, complications could arise.
A health insurer may find that some plans owed MLR rebates have shut down, and some plans may find that rebates are attributable mainly to employees who have left the employers that sponsor the plans, Fensholt says.
"Each situation must be considered by the plan's fiduciaries, within the factual context," Fensholt says.
Larry Klayman of Freedom Watch, a political advocacy group, strongly opposes PPACA.
"While creating competition and thus lowering the cost of healthcare so all Americans can afford it for themselves and their families is our goal, Freedom Watch will not stand idly by and watch our health care system be socialized in the Canadian and European models," Freedom Watch says in a summary of its views on health are posted on its website. "The hard fact is that we have the finest health care system in the world and we do not need a socialistic system to protect our citizens from disease and tragedy. The Obama-Clinton regime is bent on turning our health care system into a second rate socialist nightmare, where doctors and other health care providers lose their economic incentive to create the best medicine has to offer."
WHY AN ACO?
David Himmelstein and Steffie Woolhandler, the co-founders of Physicians for a National Health Program (PNHP), Chicago, say health insurers could use the new accountable care organizations (ACOs) to cope with the PPACA medical loss ratio (MLR) provisions.
The MLR provisions require health insurers to spend 85% of large group premiums and 80% of small group premiums on health care and quality improvement efforts or pay rebates.
An ACO is supposed to be a mechanism for giving groups of providers a financial incentive to improve the quality and reduce the cost of providing health care. An ACO might use computer systems and nurse case managers to run wellness, condition management and care coordination programs.
Some have asked whether an ACO might simply be an entity that uses antitrust exemptions to jack up the prices it can charge insurers.
Himmelstein and Woolhandler say in a comment posted on the PNHP website that shifting work to ACOs could be a way for a health insurer to hold down its MLR.
"Moreover, some current sales expenses will be offloaded to the insurance exchanges, which are likely to have overhead of 3-4%, and the exchanges' expenses will not count as part of insurers' overhead," Himmelstein and Woolhandler say.