Medical Loss Ratio Rebates: Employers Should Prepare for the September 30 Deadline

ACTION REQUIRED FOR EMPLOYERS RECEIVING HEALTH PLAN REBATES

Health insurance carriers and health maintenance organizations (HMOs) that do not satisfy the Affordable Care Act (“ACA”) Medical Loss Ratio (“MLR”) requirements must issue rebates to fully insured group health plan sponsors by September 30 each year. The MLR requirements do not apply to self-funded plans. As the deadline approaches, employers should be prepared to determine whether they will receive a rebate, and if so, how the rebate must be handled.

What Are the Medical Loss Ratio Requirements?

Under the ACA, health insurance carriers must spend a minimum percentage of premium dollars on medical care and activities that improve healthcare quality, and the remaining percentage may be spent on administrative expenses, marketing and profits. Below is the minimum percentage of premium carriers must spend on medical care by market segment

• 80% for the small group market (generally groups up to 50 employees)
• 85% for the large group market

The MLR rebate is based upon a three-year average of a carrier’s book of business and is annually reported to state regulators. The amount of the rebate varies on a carrier and state-by-state basis. In 2026, it is estimated that approximately $759 million in MLR rebates will be dispersed to individuals and employers, and since 2012 approximately $14.4 billion in rebates have been issued.[1]  

If a carrier meets or exceeds these requirements, then no rebate is issued. However, if a carrier fails to meet these thresholds, it must return the difference in the form of an MLR rebate either as a cash refund or credit against future premiums.  

What Employers Should Know

While the rebate is generally paid to the employer as the policyholder, the employer is not automatically entitled to keep the entire rebate.

 Employers should review their governing plan documents to determine if they can keep the rebate. If the plan document does not allow the employer to retain the rebate, then the employer must determine whether all or a portion of the rebate should be used for the benefit of plan participants, and handle the rebate in accordance with Department of Labor (“DOL”) guidance.  The rebate must be used for the exclusive benefit of plan participants, including former employees (if the cost is not close to the rebate amount) and COBRA beneficiaries.

The DOL guidance provides several options for employers to use the rebate, including:

• Reducing future premiums for all covered employees;
• Reducing contributions for employees in the plan that received the rebate;
• Providing a cash refund to employees in the plan that received the rebate; or
• Enhancing plan benefits, such as reduced deductibles/copayments, or adding new services

Employers should document the decision-making process, including any calculations reduction of contributions, cash refunds, or enhancement of plan benefits.

Timing Matters

Employers should generally distribute or apply the rebate within three months of receipt to avoid ERISA trust requirements.

Action Items

As the September 30 deadline approaches, employers should:

• Confirm whether an MLR rebate will be issued by the insurance carrier
• Review governing plan documents
• Review employee contribution percentages for the applicable plan year, if any to determine if all or any portion of the rebate is a plan asset
• Evaluate the options to distribute the rebate
• Document the decision-making process

Non-Federal Governmental and Church Plans Non-federal governmental and church plans are generally exempt from ERISA. Non-federal governmental plans, must distribute the rebate in one of the following ways: Reduce premiums for the next plan year; orProvide a cash rebate to employees who were covered by the plan receiving the rebate. If the plan is a church plan, the employer must agree to distribute the rebate based upon the total amount all employees contributed toward premium in one of the above ways, otherwise, the carrier must distribute the rebate directly to participants of the health plan.

If you have any questions about your MLR rebate or need assistance determining the appropriate use of rebate funds, please contact your Fedeli Group Client Account Executive.

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[1]               McGough, Matt; Ortaliza, Jared; and Cox, Cynthia. “2026 Medical Loss Ratio Rebates.” Kaiser Family Foundation, July 13, 2026, kff.org.