Medical Loss Ratio (MLR) Rule and Possible Rebate

  • The Affordable Care Act requires healthcare plans to spend at least 80 percent of their members' monthly payments on healthcare services and activities to improve healthcare quality. (Health plans for large employer groups must spend at least 85 percent of member payments on healthcare quality improvements). This is referred to as the medical loss ratio or MLR rule.

    If a healthcare plan does not spend at least 80 percent (or 85 percent for large employer group plans) of its members' payments on healthcare quality improvements, the plan must refund their members.

    Frequently asked questions

    How do I know if I'm getting a rebate?

    The current rebate is going out to LifeWise Health Plan of Oregon employer groups only. It's for people who have their healthcare plan through work, not for those who purchased their healthcare coverage on their own as an individual. If you work for an employer, they will deliver the rebate to you and other employees according to federal law.

    What is the medical loss ratio (MLR)?

    The medical loss ratio is the amount that we spend on medical services and health programs compared to the total amount received from our members.

    What is the MLR reporting year for the 2016 rebates?

    For the 2016 rebates, the MLR reporting year was from January 1, 2015 through December 31, 2015.

    Why did I receive a rebate?

    According to federal law, LifeWise Health Plan of Oregon must spend at least 80 percent of monthly payment amounts on medical claims and healthcare quality improvements. If we do not reach this spending amount, we make up the difference by sending out a rebate. Last year we spent less than 80 percent of health plan payments on medical claims and healthcare quality improvements. So, we are issuing rebates to make up the difference.

    The rebate calculations are based on the entire population of that applicable market. It is not based on individual subscriber or plan totals.

    How is the MLR rebate calculated?

    According to federal law, we must spend 80 cents out of every dollar that is received from monthly payments on medical claims and healthcare quality improvements. (Our large employer group plans are required to spend 85 cents out of every member dollar on healthcare improvements.) If we don't reach this spending amount, we make up the difference by giving a rebate. For example: If a health plan only spent 78 percent or 78 cents out of every member dollar on healthcare improvements, the plan must rebate 2 percent (or 2 cents out of every dollar).

    The rebate calculations are based on the entire population of that applicable market. It is not based on individual subscriber or plan totals.

    Does this mean that we overcharged our customers?

    No. We set our rates by carefully forecasting the costs of medical services and the number of members we think will use those services. Last year, health plans across the country saw members using fewer medical services than expected. LifeWise members also used fewer medical services than we had forecasted. Because of information such as this, we are able to review future rates for necessary adjustments.

    How are healthcare plans allowed to spend the remaining 20 (or 15) percent?

    The remaining 20 (or 15) percent of each member rate dollar can be used to pay administrative expenses, such as payroll, advertising, and overhead.

    You sent me a letter saying that I got a rebate, but I didn't receive a check. Why?

    You didn't receive a check because you get your health coverage through an active employer group. Your rebate will be sent to your employer. Your employer will then deliver the rebate to you and other employees according to federal law.

    How does the health plan deliver the rebate?

    It depends on whether it is an individual plan, an employer group plan covered by ERISA (Employee Retirement Income Security Act), a governmental plan, or a terminated group plan:

    • Individual plans: Rebate is sent directly to all current and former policy holders.
    • Employer group ERISA plans: Rebate is sent to the employer.
    • Non-ERISA governmental plans (such as state agency plans): Rebate is sent to the employer.
    • Non-ERISA, nongovernmental plans (such as church plans):
      • If the plan receives a written promise from the employer that rebates will be used to benefit enrollees, the plan sends the rebate to the employer.
      • Without a written promise, the plan sends the rebate to all current policy holders, divided equally. The employer receives no rebate.

    How must an employer distribute the rebate?

    Employers must distribute MLR rebates according to the Department of Labor's Employee Benefits Security Administration rules. This varies based on whether the rebate is for an employer group plan covered by ERISA (Employee Retirement Income Security Act) or a governmental plan:

    • Employer group ERISA plans: Under ERISA, the employer or the administrator of the group health plan may be responsible for using the Medical Loss Ratio rebate properly. Part or all of the rebate amount may become an asset of the group. The group must use such assets to benefit the employees covered by the group policy. For information about how the rebate will be used, employees should contact the employer or group policyholder directly.
    • Non-ERISA governmental plans: The employer must distribute part or all of the rebate either by reducing members' monthly rates or by providing a cash refund to covered employees.
    • Non-ERISA nongovernmental plans:
      • The plan must receive a written promise from the employer that the rebate will be used as described above for non-ERISA governmental plans.
      • Without the written promise, the plan must distribute the rebate evenly among current employees covered during the MLR reporting year.

    Please contact your employer directly for information about how the rebate will be used or distributed.

    When are this year's rebates going out?

    For the 2015 MLR reporting year, rebates will start going out on August 25, 2016.

    What is defined as an activity that improves healthcare quality?

    An activity that improves healthcare quality is likely to lead to better health and is grounded in evidence-based medicine. Such activities include:

    • Care coordination for people with complex conditions
    • Disease management for people with chronic conditions such as diabetes
    • Nurse hotlines
    • Health and wellness programs

    What are healthcare plans required to report to the Health & Human Services Department (HHS)?

    Each year, the plan must report the following to HHS:

    • Members' monthly rates
    • Claims
    • Healthcare quality improvement expenses
    • Other non-claims costs incurred such as administrative costs, federal and state taxes, and regulatory fees and assessments

    What are individual and employer group health plans?

    Individual health plans are purchased directly from a healthcare coverage company by an individual person.

    Employer group health plans are those that employers provide to their employees.

    What is a large employer group?

    A large employer group is an employer who has 51 or more employees.

    What is a premium?

    A premium is the monthly payment made by members to a healthcare plan in exchange for healthcare benefits and coverage.