MLR Rebates Reminder for Employers

Each year, by September 30, health insurance carriers must issue Medical Loss Ratio (MLR) rebates if they collected more in premiums than allowed. Employers who receive a rebate then have to decide how much must go back to employees and former participants and distribute that portion to them within 90 days. Brokers play a key role in reminding and guiding employers through this process.

At Benefits Compliance Solutions, we hear the same questions every fall from brokers: “Do I have to do anything with this MLR rebate?” or “Can my client just keep it?”

It’s easy for MLR rebates to get overlooked. They arrive right as employers are knee-deep in Q4 prep, open enrollment, renewals, and budgeting. But missing the 90-day compliance window can create ERISA headaches. That’s why we make it a point to flag this issue for brokers each September.

What Brokers Need to Know About MLR Rebates

The Affordable Care Act requires insurers to spend a set percentage of premiums on claims and quality improvements. If they don’t meet that threshold, they must refund the difference. The check goes to the employer, not directly to employees.

As a broker, your role is to help clients understand whether they can retain the rebate or if part of it must be shared with participants. This depends on the plan language and whether employees contributed to premiums.

• If plan documents clearly say rebates belong to the employer, the funds may be retained as taxable income.

• Without such plan language, if employees paid part of the premiums, that proportional share of the rebate may be considered plan assets under ERISA which must benefit participants.

  
  

Example: If employees paid 20% of last year’s premiums, then 20% of the rebate belongs to them.

Options Employers Can Use to Share Rebates

When some of the rebate must go back to participants, employers generally have three choices:

• Pay a taxable cash refund

• Apply a premium holiday to reduce future payroll deductions

• Enhance benefits, provided the value is delivered within 90 days

  
  

If former participants are included, cash payments may be the cleanest option.

Compliance Rules Brokers Should Flag

• No de minimis exception: Even small participant amounts must be returned.

• Equal distribution is allowed: Employers don’t need to overcomplicate allocations unless they want to. Federal guidance allows equal distribution if it’s reasonable and objective.

  
  

Why This Matters for Brokers

Your employer clients may not expect a rebate, but if one arrives, the compliance clock is already ticking. They’ll look to you first for answers. A quick reminder now can save them,  and you, from messy ERISA issues later.

By positioning yourself as the compliance guide, you reinforce your value beyond renewals and open enrollment. You’re not just delivering benefits options — you’re protecting clients from unnecessary risk.

Broker Action Steps:

• Remind employers to check for MLR rebate checks by September 30

• Review plan documents to see if rebates default to the employer

• Help calculate the participant share if required

• Advise on a distribution method that works for their situation

• Encourage them to document their fiduciary process

  
  

  

  
  

Frequently Asked Questions

What is an MLR rebate, and why does it matter to clients? An MLR rebate is money insurers must refund if they don’t spend enough premium dollars on health care. It matters because once an employer receives a rebate, they only have 90 days to handle it correctly.

Who actually gets the rebate check? The carrier issues the rebate check to the employer. From there, the employer must determine if part of it belongs to participants.

Do employers really have to share a small rebate with employees? Yes. There’s no minimum threshold that excuses distribution. Even if it amounts to just a few dollars per person, the participant share must still be returned.

Can employers keep the full rebate? Only if the plan documents say so. Otherwise, if employees paid any portion of premiums, they might be entitled to a proportionate share of the rebate which must be used for their benefit within 90 days.

How can employers give employees their portion of the rebate? They can provide cash refunds, apply a premium holiday, or enhance benefits — as long as participants see the value within 90 days.

Why should brokers care about this? Because employers will come to you first for guidance. By helping them handle rebates correctly, you prevent compliance problems and strengthen your advisory role.

Final Thoughts

MLR rebates may not be common, but when they do show up, they require fast, compliant action. As a broker, you’re in the best position to make sure employers don’t miss deadlines or misapply funds. At BCS, we care about keeping these issues front and center so you can focus on guiding your clients through Q4 with confidence and compliance.