A check from your health insurance company may be a welcome sight, but spending it improperly could be disastrous, said Doug Johnson, president of JA Benefits, an Indiana-based benefits provider.
Employers have begun to receive checks from their insurance issuers due to a provision of the Affordable Care Act that sets a minimum medical loss ratio (MLR). Insurers that fail to spend the specified minimum percentage of premiums on clinical services and quality-of-care improvement must rebate the difference to employers by August 1. The total amount to be returned to employers is expected to approach $1.3 billion. Many employers, however, are not familiar with the restrictions on the use of those funds, said Johnson.
“You can’t just put that check into your general business bank account,” he cautioned. “These are rebates on your health insurance premiums, so they need to go back to whoever paid the premiums originally. That means that if your employees paid some portion of their premiums, they need to receive the same proportion of the rebate.”
Rebates can also be applied directly to the next cycle of premium payments, so long as the amount due from employees is deducted in the appropriate proportions. Employers must also consider whether their employees’ premium payments have historically come from pre- or after-tax dollars. The MLR rebates are subject to tax liability if the employees paid their premiums pre-tax (the most common scenario), so employees will need to made aware that they will be taxed on the amount of the rebate, even if it is applied to their next premium.
“For the majority of employers, your best bet is going to be distributing your employees’ portion of the rebates to them as a one-time bonus,” Johnson said. “This way you can withhold taxes as usual instead of complicating their tax liability.”
JA Benefits provides a point-by-point plan for allocating MLR rebates on their website, accessible under "Client Resources" (or by clicking here). Johnson is also available to answer questions from employers and human resources professionals at 812-279-9500, ext. 515.
Failure to follow appropriate procedures could have tax consequences or worse, said Johnson. “It could turn into a big deal if you don’t treat these rebates correctly. Misappropriation of funds is a serious legal matter regardless of the size of the rebate, which may be quite small for some companies. Don’t play a guessing game with these checks. We’re happy to explain the process to anyone who has questions.”
About JA Benefits, LLC
JA Benefits, LLC provides the full range of employee health, wellness, and retirement benefit services and technology products to clients of all sizes. Formed in 1988, JA Benefits has grown to become one of the largest Independent benefits consulting firms in the Midwest. Based in Bedford, Indiana, its associates serve clients across the nation.
Douglas Johnson, President
JA Benefits, LLC
"Thank you, JA Benefits, for your immediate responses to our calls and questions. We have greatly benefitted from your expert advice and the wide range of options you offer."
“The service is great. Whether it is ways to cut health insurance costs or questions about coverage, I can count on the staff of JA Benefits."
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“JA Benefits has been very helpful to me over the past 7 years. They always do the work up front and I never have to worry about anything that needs to be done."
"As a small-midsize employer, JA has brought us on-line enrollment via our voluntary benefits carrier. This has helped us tremendously in saving time, positively impacting our ability to remain HIPPA compliant, and providing great customer service to our staff."
"We have immediate access to JA Benefits representatives, and if they do not have the answer to our questions, they find it. I know they will always work on our school corporation’s behalf to get the lowest possible premium."