AISHealth.Com: Insurer Says Plans Are Weighing Options on How to Deal With, Distribute MLR Rebates

Featured Health Business Daily Story, Oct. 6, 2011

Insurer Says Plans Are Weighing Options on How to Deal With, Distribute MLR Rebates

Reprinted from AIS’s HEALTH REFORM WEEK

By Jennifer Lubell, Editor – September 26, 2011 – Volume 2 Issue 32

Insurers are weighing several options on how they plan to distribute rebates under the health reform law’s minimum medical loss ratio requirements, with many leaning toward cutting checks directly for the employers and employees, Michael Cleary, senior vice president, chief financial officer and treasurer at Capital BlueCross, said during a Sept. 19 presentation at the World Congress’ 2nd Annual Health Care Reform Congress on Medical Loss Ratios.

Each of these methods “have particular challenges,” where insurers are going to have to rely on employers to do the right thing, and be diligent in getting rebates out, Cleary said. The conference took place in Arlington, Va., and was organized by World Congress Leadership Summits, a division of World Congress.

Insurers are ultimately responsible for getting MLR rebates into the proper hands, but in discussions with HHS, the industry had emphasized that the law doesn’t necessarily compel or require employer groups to cooperate on this matter, Cleary asserted. “There’s a whole lot of complicating factors” insurers must deal with in issuing rebates, he continued.

“[For] many employer groups, their benefits may not run on the calendar, or they may switch and change employee contributions and benefits mid-year, so it’s not as simple as getting a fixed percentage from the employer. You can have employees terminate during the year, [and] the law says that if that employee contributed to their coverage and is eligible for their rebate, you’ve got to find them.” Insurers also have to handle the tax reporting that results from these rebates.

HHS’s response has been that “they feel our pain, and are somewhat sympathetic, but they expect us to comply with it,” Cleary said. For some insurers, the out-of-the-box reaction has been that they’ll just price their product with a cushion for the MLR thresholds, just to avoid this altogether. That option might be very costly, Cleary warned.

One option for insurers is to modify the contracts they have with employer groups to include language that requires the groups to assist insurers in dealing with all provisions of health care reform, not just MLR provisions, Cleary said.

Insurers May Just Cut Direct Checks

Beyond that, insurers appear to be migrating toward three specific approaches for dealing with rebates, he said. Based on Cleary’s own nonscientific survey, for which he queried at least 20 insurers nationwide, roughly half appeared to be looking at an approach where insurers would put the rebates directly into the premium payer’s hands.

Under this approach, the insurer would pay the employer what it is owed, “then cut separate checks to all of the individual employees who are entitled to rebates.” Capital BlueCross has decided to pursue this option, with the goal of issuing rebate checks by Aug. 1, 2012.

The medium-sized carrier, which is based in Harrisburg, Pa., with over $2 billion in annual revenue, opted for rebating directly to the premium payer for a number of reasons, Cleary later tells HRW.

“It gave us the strongest argument upon audit that we took ‘best efforts’ to get the money into the right hands,” and removed the risk that the employer would get careless with the rebates or wouldn’t properly follow through with their responsibility, he says.

The option also would minimize the disruption and/or burden that the health plan would put on its group customers, he explains. It is the most labor-intensive option, however, Cleary says. At the conference, he conceded this approach would “require a massive gathering of information, and a lot of cooperation between the employer groups and the insurers.”

Insurers also are considering an option where they would rebate to employer groups a single check with very detailed instructions on how to distribute the rebate. Others have said they might issue a rebate or cut a check to the employer groups without instructions.

Some Approvals Require Data Collection

Those considering the rebate-with-instructions approach would have to include employee rosters, “with the amount of rebates that’s due back to each employee,” said Cleary, who cautioned that this system would require the insurer to do a lot of data collection. “They’re going to have to query the employer groups and get all of this information on what the employee contributed to their premiums.” On the plus side, this would shift the burden to the employer as far as any tax reporting that may be required, he said.

In cutting the rebate check to the employer groups without instructions, the insurer is acknowledging that the employers “are the ones closest to the employee population. They’re the ones who know what changes in coverage may occur during the year, which folks were terminated — and would have to track them down.” Employers also would know which members switched benefits during the year, he said.

But there’s a risk to insurers that comes with asking the employer to take on this type of burden, Cleary said. “If the employer is not diligent or cooperative in getting those dollars into the right hands in a timely fashion, the law says it’s the insurer that’s on the hook. In addition, the insurer is required to keep accurate records demonstrating that the funds got back into the right hands.” This means asking the employer to give them proof and a lot of details as to how they distributed the rebates among employees, he said.

For large employers that are self-funded, MLR rebates are not going to be an issue, Steve Wojcik, vice president for public policy at the National Business Group on Health employer coalition, tells HRW.

But for smaller employers that sponsor health benefits, “my assumption is they would prefer to get payments directly from the insurers and then distribute whatever they need to distribute to employees.” This is because the insurer may not necessarily know how much the employee pays for the insurance, versus the employer, he said.

One thing insurers are doing “is they’re reaching out to HHS and looking to develop some safe harbor provisions” on issuing rebates, Cleary said. Such provisions would address the fact that insurers “have this challenge or predicament we’re in. We’re trying to comply with the law. We believe that in taking the following steps, we’ll be deemed to be in compliance,” he said.

In his interview with HRW, he acknowledges that distributing rebates directly to customers’ employees may be difficult for Capital BlueCross to do, in the event certain employer groups don’t respond to its request for payer information. As a result, the insurer ends up sitting on dollars that are owed to some group — and doesn’t have the information to distribute them.

“Some insurers in this camp are hoping to develop some default allocations, and just go 50-50 on the rebates. Some are going to just give it all to their employees. What many plans may end up doing is simply holding the funds in escrow, and reaching out to the group once a year in a letter saying, ‘We’ve got some money for you,’” Cleary said.

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