Medical Loss Ratio Rebate Review

July 2026

Diana Craig, Director, Benefits Compliance

As a reminder, the Affordable Care Act (“ACA”) requires health insurance issuers to spend at least 80% (small group market) or 85% (large group market) of premiums on claims and activities to improve health care quality. Issuers that do not meet these percentages, called medical loss ratios (“MLR”), are required to pay rebates to policyholders. For insured group health plans (MLR rules do not apply to self-funded plans or excepted benefits, like most dental and vision plans), the employer/plan sponsor is the policyholder so it may receive those rebate checks from issuers, usually by mid- to late September.

Apportioning MLR rebates

Employers that receive MLR rebates need to determine what portion of the rebate is attributable to “plan assets.” For plans with a trust, the entire rebate amount is plan assets. Otherwise, for plans with employee premium cost sharing, the percentage of the rebate that reflects the amount employees paid towards premiums is plan assets. For example, if an employer paid 60% of premiums and employees paid 40% of premiums, 40% of the rebate is plan assets. Where cost sharing varied by tier of coverage, it can be simplest to take the total dollars paid to the carrier over the reporting year at issue (the preceding calendar year) and separate the total amount paid by the employer versus employees, creating a plan assets percentage.

ERISA and the exclusive benefit rule

An employer/plan sponsor can generally do what they want with their employer portion or percent of the rebate. There are, however, strict rules under ERISA that are more restrictive in the MLR context, governing what an employer can do with the plan asset portion of a MLR rebate. Under ERISA, refunds or similar payments that include plan assets, are subject to the “exclusive benefit” rule. Under that rule, the plan asset portion of the payment must be used for the exclusive benefit of participants and beneficiaries. MLR rebate rules further provide that employers must allocate the plan asset portion of a MLR rebate for the benefit of participants who were or are covered by the policy to which the rebate relates.

In assessing options for the plan assets portion of a MLR rebate, an important first step is to divide the plan asset amount by the number of employees covered by the plan for the reporting year at issue, including any COBRA qualified beneficiaries. If that per employee flat dollar amount is relatively small, employers do not need to seek out and pay former plan participants, which can be challenging. Specifically, if distributing payments to past participants is not cost effective (e.g., payments to participants are of de minimis amounts, are administratively burdensome, or would give rise to tax consequences to participants or the plan), the plan may apply the rebate toward current or future participant premium payments or toward benefit enhancements. Most commonly, rebates are used for a premium holiday or discount for current enrollees in the plan that generated the rebate. The plan asset portion of the rebate can also be used to reduce employee cost sharing at renewal. Note, however, that employers should attempt in good faith to distribute the plan asset portion of the rebate within 90 days (three months) to stay within a Department of Labor ERISA trust non-enforcement safe harbor. Note that employers can, but are not required to, do more complex calculations to assess whether a per employee rebate amount is large enough to warrant making payments to past plan participants.

Options for non-ERISA plans

For non-ERISA plans, including non-federal governmental plans, interim final regulations specifically require any portion of a rebate that is based on former participants’ contributions be used for the benefit of current participants. This can be current participants enrolled in the benefit option that generated the rebate or under any benefit option offered by the plan at the time the rebate is received. Rebates can also be paid as a cash refund to participants covered under the policy to which the rebate relates. Note that church plans must provide written assurance that any rebate will be used in the same way that a rebate to a non-federal governmental plan could be used.

Issuer notices

Because issuers are required to send a letter to plan enrollees notifying them that a rebate was issued, employers may want to consider communicating with participants regarding whether they can expect to receive a portion of the rebate. This added communication is optional, and many employers prefer to respond to any inquiries as they arise. The issuer notice to enrollees will not include the amount of the rebate. 

Employer action items

• Calculate what percent of any rebate check is plan assets.

• Divide the plan asset amount by the number of employees covered by that plan for the reporting year to determine whether per-employee rebate amount is large enough to warrant making payments to past plan participants (~$50). Not required for non-ERISA plans.

• Distribute large per-employee rebate amounts to past participants. Not required for non-ERISA plans.

• Otherwise, use rebates for the benefit of participants currently enrolled in the plan that generated the rebate (premium holiday or reduce cost sharing at renewal) within 90 days. Non-ERISA plans have greater flexibility.

Additional information and resources

• Technical Release No. 2011-04 | U.S. Department of Labor

• Federal Register : Medical Loss Ratio Requirements Under the Patient Protection and Affordable Care Act