How much do insurance companies spend? How much do they make? And how does that impact me? These are all important questions. In this article, we’re going to try to answer some of that in a way that hopefully makes sense.
What is the Medical Loss Ratio?
The medical loss ratio is the amount of money an insurance company spends on health care versus how much it spends on overhead and keeps for profits. For individual and small group health plans, insurance carriers must spend at least 80% of every dollar they charge on actual medical care, with 20% allowed to go toward overhead and profit. If they spend less than 80% premiums on health care; they must rebate the money to policyholders.
The medical loss ratios are applied to each health plan an insurance company offers, so different plans may have different refunds and one plan within a company may have a refund while another does not.
So Who Gets Paid?
For individual policies, this is a simple process; the insurance carrier simply mails a check to the policyholder.
For small groups, the employer is responsible for any rebates, appropriating then among the receiving parties.
If the employer has paid 100% of the premium, then the employer keeps the refund.
If employees have paid a portion of the premium, they must receive their share of the rebate, in the same ratio as the premium is paid. If the employer pays 50% of the premium, the employee would receive 50% of the amount he/she paid. If the employer pays $100 and the employee pays $200, then the employee would receive 67% of the rebate.
Employee rebated may be paid by the employer by check, premium reduction, or even a gift card if the amount is small.
Former employees are also eligible for the rebate. Employers must make a good faith effort to deliver the rebate to the last known address.
If a company does not comply with the rebate regulations, the company could run into trouble with the Department of Labor. This should definitely be avoided.
What Does All This Mean for Me?
If you’re not sure about how your current insurance plans relate to any of this or what the Medical Loss Ratio has to do with you, contact us today for a FREE consultation. We’re always available to help make sense of complicated issues like these.
(Article by Steven J. Polk, originally written 8/28/2012)