Important Health Care Act Update

If you are a small business owner who recently received rebate checks from your health care insurance companies, these checks are a result of a provision in the Patient Protection and Affordable Care Act that requires insurers to meet Medical Loss Ratios (MLRs).  Under the law, if an insurance company spends less than 80% of premiums on medical care and quality (or less than 85% in the large group market) as opposed to administrative costs, it must rebate the portion of premium dollars that exceeded this limit.

There is confusion about what the employer can do with the check, specifically what amount, if any, has to be given to the employee and whether it is taxable.  This may look like "found money" but, there are "traps for the unwary" depending on your tax structure.

Helpful links:

Information from the IRS on the taxable situation

Information the Department of Labor has issued on MLR distributions

Department of Health and Human Resources materials on the rule itself

Information provided by the Association of Small Business Development Centers