By Greta Malstrom, Payroll Manager at Schwartz & Schwartz
The Affordable Care Act (ACA) established medical loss ratio (MLR) rules to help control health care coverage costs and ensure that enrollees receive value for their premium dollars. If your practice is eligible for the rebate, you will receive (or may have already received) a rebate check from your health insurance provider. There are many regulations and choices of how to administer the MLR Rebate; we recommend that our clients follow these 5 steps within three months of receiving the rebate.
- Calculate how much of the total rebate goes to staff. Simply divide the total health insurance premiums paid by the employees in 2023 by the total premiums paid to get the percentage of the rebate that must be distributed to the employees. Multiply the total rebate amount by that percentage to calculate the total dollar amount to be distributed to the eligible employees.
- Determine which employees are eligible for the rebate. Make a list of all CURRENT employees who pay partial or full health insurance premiums in 2024 and who also paid them in 2023. These are the eligible employees.
- Figure how much to distribute to each employee. Distribute the rebate evenly among eligible employees by dividing the total rebate to be paid to staff by the number of eligible employees.
- Were the premiums paid After-Tax or Pre-Tax and how will my employees get the rebate?
- If After-Tax, the rebate is generally not taxable. Reduce each eligible employees’ after-tax Health Insurance Premium deduction one time (more if needed) by the amount of the employee’s rebate. NOTE: Tell eligible employees they should let their accountant know, if the employee deducted the premium payments on his or her prior year taxes, the rebate is taxable to the extent the employee received a tax benefit from the deduction.
- If Pre-Tax, the rebate is taxable. Reduce each eligible employee’s pre-tax Health Insurance Premium deduction one time (more if needed) by the amount of the employee’s rebate. A premium reduction in the current year will reduce the amount that an employee can contribute on a pre-tax basis. Thus, there is a corresponding increase in the employee’s taxable salary that qualifies as wages subject to employment taxes.
- Notify your staff and keep good records. Give eligible employees a letter stating there will be a one-time reduction in their Health Insurance premium due to an MLR rebate received from the Health Insurance provider. For your records, keep copies of the letters given to the employees, a copy of the letter and check(s) received from your insurance company, records of your calculations, and how the rebate was distributed to the employees.
NOTE: For Schwartz & Schwartz Payroll Clients-the payroll team will handle this for you. Please forward them the letter, a copy of the check(s) and the total premiums paid by your practice for 2023 Health Insurance to payroll@schwartzaccountants.com.