August 2012  Tax Tips from Smith, Sullivan & Company P.C.
 
 
   
The Patient Protection and Affordable Care Act requires individual and group insurers to spend a specified minimum percentage of the premiums they receive each year on health care claims.  Insurers that fail to meet the medical loss ratio (MLR) requirement for a given year must pay rebates to their policyholders or subscribers.

If your Company receives a rebate check, it may be used to pay future health care premiums for the plan or the rebate must be shared with the Company's covered employees.


Health insurers should have sent MLR rebates owed for 2011 by August 1, 2012.
 
 
If your employees paid a portion or percentage of the premiums paid to the insurer, the same portion or percentage of the rebate payment received from the insurer must go back to employees.

Allowable options for the employee share include (but are not limited to): 
  • Cash rebates to each employee who participated in the plan during 2011 
  • Applying employee share to reduce employee contributions in 2012 
  • Applying employee share to enhance benefits  
If your employees make their premium contribution with pre-tax dollars (through a cafeteria plan election, for example) or if they claim a federal income tax deduction for their premium payments, their portion of the rebate is taxable compensation subject to employment taxes. 
 
As an employer, it is important to monitor whether or not you will receive a rebate. Insurance carriers will notify qualifying rebate participants directly.



Helpful points about the medical loss ratio rebates:


1. 
Rebates will be paid for the 2011 calendar year. Insurance carriers will notify all participants, including former employees who participated in health plans in 2011, about rebates.

2. 
Employers may use the 2011 rebate for either employees in a health plan in "both" 2011 and 2012; or only those employees in a health plan in 2012. 

3. 
Employers will have 90 days from receipt of a check to make payments to participants.

4. 
According to the IRS, payments to participants will be taxable income. Accordingly, rebates will be wages for purposes of withholding taxes and compensation under most plans.

For further information or questions regarding an employer's obligations in regard to a medical loss ratio rebate, please contact us
 
 
Linda Smith and
Maureen Sullivan
Questions?  Call us at 508.871.7178

or email: [email protected] 

or go to:  www.smithsullivancpa.com   

  

  


 

  

 

 

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