Health Care Medical Loss Rebate Mightmare
Under obamacare, health insurance companies are required to provide premium rebates if the company does not meet the Medical Loss Ratio (MLR). The purpose of the MLR is to force insurance companies to reduce overhead expenses. If an insurance company spends 85 cents out of every premium dollar to pay medical claims then the MLR is 85%. The remaining 15% is used to pay for marketing, profits, salaries, administrative costs, commissions, and other overhead.
Under obamacare, the MLR for large group policies is 85%, and 80% for small groups.
Well on Monday, my company received the MLR rebate. It turns out our health insurance company did not meet the MLR and rebated 3% of our annual premium.
Sounds good so far, a nice big check, lowers the cost of the health insurance. What a deal. Thanks obama.
Not so fast.
Along with the check comes a letter from the insurance company and the Department of Labor (DOL). I can't just deposit the check, there are rules telling me what I can do with the rebate. What the company does with the rebate depends upon all kinds of legal issues, ERISA, the type of plan, "plan assets", who paid what percentage of the premium, and things I don't understand. I sent it to the CPA's, they stewed on it for a week, said the rules were not clear, the DOL guidelines were not clear and this would probably be appealed or go to court for clarification, but the best approach was to split the rebate proportionately based upon the premium paid by each employee and the company.
Great. Now I have to write a couple hundred checks, each check a unique amount. Do I deduct payroll taxes from each check? Does it count as current year income for the W-2? CPAS's have to go back and look that up.
What about former employees, people on COBRA, deased employees? More questions without answers yet.
And I get to create a notice to employees explaining the check they are receiving. It has to include a legal notice from the insurance company.
And then the tax question. Is it taxable to the company? Yes. Is it taxable to the employees? Yes.
Oh goody. The insurance year spans 2011 and 2012, do we need to amend the 2011 tax return or account for it in the 2012 return?
I am spending almost as much in labor dealing with this rebate than the amount of the rebate. Plus I have to deal with the legal ramifications if I do this incorrectly (and nobody seems to know what "correctly" is).
So thanks a lot obama. We all really appreciate the extra work and stress you have given us.
If the MLR is doing us a favor, I can't wait to see what else is in store for us. Dropping health insurance for employees is sounding better and better.
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