Welfare Benefit Plan ERISA News
January 2011

 
Medical Loss Ratio ("MLR")
Means Less Revenue for brokers,
More Legal Requirements for carriers, a
Major Loss of Resources for employers, and
Minor League Refunds to insureds.
New MLR rules require medical carriers to pay out at least 85% of premiums in claims for groups with more than 100* lives and 80% for smaller groups. This will affect 74.8 million Americans (20.8 million on individual plans and 64 million on group plans). The HHS expects 9 million insureds to be eligible for $1.4 billion in rebates in 2012, averaging about $164 each.[1] HHS estimates that 2.3 million enrollees are in the small group market and 2.7 million in the large group market.[2]
In order to meet the MLR, carriers have already begun to reduce commissions or remove them entirely from premiums. Brokers will need to negotiate their fee directly with their client, the employer. Currently, broker commissions are only disclosed on Schedule A of Form 5500, but this only applies to groups with 100+ participants, which amounts to less than 2% of all employers. Spotlighting brokers' fees to executives at an employer every month is going to put brokers under tremendous pressure to reduce and justify them. ERISA Pros' consulting and compliance services, e.g., Plan Documents, SPDs, and Form 5500 preparation services are valuable additional services that brokers can offer to their clients in order to release some of that pressure. 
Another insidious aspect of MLR for five million employers [3] relates to the unanticipated consequences of ERISA regulations. First, rebates may be considered to be plan assets, which must be used exclusively for plan purposes and may have to be held in trust. The MLR regulations are silent on these rules. Second, employers with less than 100 employees are exempt from filing an annual Form 5500. However, they lose this exemption if they do not disclose a written Refund Allocation Policy describing how insurer refunds are to be allocated. This provision is typically found in an SPD, but most small employers do not have an SPD and do not file Form 5500 - risking DOL penalties of up to $1,100/day.
* States may elect to use more than 50 instead of 100.
 
 
Breaking PPACA News!

- The IRS has delayed the implementation of its new nondiscrimination rules for insured health plans.

- After January 15, health FSA and HRA debit cards can be used for over-the-counter drugs, under certain conditions.

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"How ERISA Will Affect Your Group Insurance Clients in 2011"
 
 
© 2014 ERISA Pros, LLC, All rights reserved. Information on ERISA Pros' website, its newsletter, “News & Views,” and its blog, “ERISA Wonk,” is published as a general informational source. Information and articles are general in nature and are not intended to constitute legal or tax advice in any particular matter. Blog posts and comments reflect the personal views of their respective authors - not those of ERISA Pros. Transmission of this information does not create an attorney-client relationship. ERISA Pros, LLC is not a law firm and is not giving legal or tax advice. It does not warrant and is not responsible for errors or omissions in the content on its website or in its newsletters. ERISA is a complicated and confusing law. Summary Plan Descriptions (SPDs), Wrap Plan Documents, and Form 5500s require review and updating by qualified ERISA compliance professionals.

 

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