Have you received 2016 ACA refunds? Here is a quick overview of potential options for using the refund in compliance with applicable laws.
The Affordable Care Act (ACA) has complicated the management of group health insurance. Additionally, the bill does not seem likely to change in the near term, so the rules of the marketplace will remain. Many employers are receiving 2016 Rebate Checks from major health insurance carriers including Blue Cross Blue Shield, Blue Care Network, and Priority Health. Despite the mandated explanatory letter accompanying these Rebate Checks, many employers in the small and mid-sized space are left scratching their heads wondering what to do now. Don’t worry, we’ll help break down the process, starting with where the money comes from…
The ACA limits how much an insurance company can make (or in the event of a self-funded plan, the sponsoring company) from an insurance offering. Think of this like a cap on profits. In insurance terms, this is done by setting a lower limit on the MLR (medical loss ratio), which is the ratio of paid claims to premium collected. If the total is below eighty percent it is too low (not enough claims and too much premium), and the company is required to issue a refund back to the employees. The rules provide companies (who are the ones typically named on the check) two main ways to handle this refund.
Option1: Use the funds to offset costs for the upcoming year
Option II: Give covered employees a cash refund from the rebate
There are two ways to complete the first option: place the funds into a trust account or use them within 3 months to offset premiums still due. The second method is the simplest and most direct. If the employer wishes to apply this refund to their current employee’s premiums, the easiest way is to use the refund to reduce the remaining employee health plan contributions that remain in the 2017 calendar year. For example, a $5,000 refund may be used to reduce employee premiums for November and December billing. Assume that 20 employees in the group are paying $400 each per month for insurance. The total remaining premium this year ($8000) can be reduced to $3,000 ($8,000-$5,000). To make this happen, employers can accept the funds into their accounting system and then increase the employer contribution to health premiums for the remainder of the year – remember to readjust the contribution rate in January!
If option 1 sounds too complicated, the money can be given back to the employees who paid premiums in 2016. This may be tough if an organization does not have high quality data. High turnover can pose a challenge as former employees need to be contacted for their portion of the rebate.
For those using Prism, the data and contact information for employees is housed within the HR application. The simplest method of calculation is to determine the proportionate share of the refund and then direct the refund to employees through the payroll provider/system. To determine the proportionate share, determine the total months of coverage in the year then divide the refund by the number of months and pay each participant the monthly rebate multiplied by the number of months that they were in the plan.
This might sound complex, but with good payroll accessible payroll from Prism, the calculation is straightforward. In the example above, let’s assume that there was no turnover. 20 people were in the plan for all 12 months, totaling 240 months of coverage purchased (20*12). Take the $5,000 rebate and divide by the covered months and each month’s rebate is $20.83 ($5000/240). Since each person was in the plan for all 12 months, their rebate is $250. If there is turnover during the year, the same basic math is used, though some individuals no longer with the company will receive a smaller portion of the rebate.
This highly complex process is burdened with numerous Federal regulations. Remember, if you partner with an HR provider, they can make this distribution easy. If not, it is recommended to contact legal counsel before finalizing a refund plan. If you have further questions, or if you want to speak with one of our professional staff members about how Axios HR can help your organization, contacts us today.
October 12, 2017
Blog Entries Compliance Cost Uncategorized