From the Hotline: Medical Loss Ratio and Form 5500 Filing

Question: How is reporting of the MLR being handled with respect to the 5500 filing?  Will it require an amended Schedule A for 2011 or a new one in 2012?

Answer: In accordance with ERISA, Schedule A (“Insurance Information”) sets forth required information about a specific group insurance policy with respect to a specific policy period. The insurance carrier completes the policy-specific information and delivers the Schedule A to the ERISA plan sponsor (i.e., employer). The employer prepares the plan’s annual report (Form 5500) including any Schedules A. In the event that the carrier corrects information by delivering an updated Schedule A, the employer would need to revise its annual report and file an amended Form 5500 with the correct Schedule A.

Separately, the Affordable Care Act requires health insurers and HMOs to spend the majority of the premium they collect on medical care (excluding administration or overhead). The required minimum – called the Medical Loss Ratio or MLR – is 85% (or 80% for individual market and small market policies). This MLR requirement first applied with respect to calendar year 2011 and rebates, if any, were distributed to policyholders by August 1, 2012.

Note that the amount of a MLR rebate is not case-specific and does not reflect the employer’s group policy results; instead the rebate amount is based on the carrier’s total results for all policies issued in a market segment (individual; small group; large group). Also, MLR calculations are not based on the employer’s group policy period; instead MLRs are determined by calendar year.

Carriers are not expected to report MLR rebates on their Schedules A since the rebate amount is not attributable to the specific group policy or policy year. Employers will not need to file an amended Form 5500 since there will not be any new or corrected Schedule A information to report.

Please note that the typical employee welfare benefit plan is an “unfunded plan” as defined by ERISA. The plan’s “funding type” is reported on Form 5500. Unfunded plan means that all plan benefits are insured (group insurance policies) or uninsured (paid by employer from general assets) or a combination of insured and uninsured benefits. (It is unusual, although certainly possible, for a private employer to sponsor a “funded” welfare plan, which generally means that some or all benefits are paid from plan assets held in a trust.) Also note that employers that receive rebates needed to follow Department of Labor guidance (DOL TR 2011-04) regarding using all or a portion of the rebate for the benefit of plan participants within three months of receipt. If the employer sponsors a funded welfare plan, and/or if the employer used the rebate in a manner inconsistent with the DOL guidance, the employer should discuss its case with appropriate legal counsel specializing in ERISA compliance.