ACA Becomes Reality. What Small Business Needs to Know.

Small BusinessThe first rebates under the medical loss ratio rule of the patient protection and affordable care act (ACA) came due last month. Under this legislation, health plan insurers must spend a portion of the premiums they receive on activities that improve the overall quality of Health Care or be assessed a penalty (an MLR rebate). This rebate will ultimately be paid back to the employer sponsoring the plan.

If you are a small business, you need to know how this rebate program works, and how your company will be affected.

First, the medical loss ratio rebates are calculated by dividing the Health Care claims and quality improvement by the carriers premium income. This premium is calculated based on three criteria: the state in which the policy is issued, the appropriate market segment, and the carriers legal entities.

For the coming year, the data suggests that health plan insurers that failed to meet the MLR rule will provide more than $1,000,000,000 in rebates to 12.8 million Americans. This averages out to around $151 per household.

Second, the medical loss ratio rebates are paid to the plan sponsor through either a reduction in premiums due or a reimbursement to the employer. Insurers must distribute all outstanding rebates by August 1 of each year.

If you’ve paid into a Health Insurance plan for your employees over the last year, an MLR rebate may have come due to you on August 1, 2012. If so, you should have received an MLR notice by now.

If you find out that you will be receiving an MLR rebate, you should contact your insurance broker, insurance company and professional advisers as soon as possible to ensure your compliance and the proper distribution and use of the rebate itself. This includes how you will distribute the rebate back to your subscribers and how you will handle the resulting tax issues.

The Department of Labor (DOL) has drafted guidelines to help health plans and employers understand the finer points of this legislation. These guidelines deal ways status and management of the rebates. They can be found at

Regardless of your political leanings, the reality of the affordable care act is upon us. The most important thing to do at this point is understand how it affects you and how to comply with the law.

If you have any questions about how this will impact your accounting records, or how to track it in your system, feel free to contact Matt or myself at 866-496-2042.

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