Premium Credits and COVID-19, what to do with it if you get one?
Since the onset of COVID-19, healthcare usage has significantly decreased. Either cancelled appointments, postponed procedures or simply just not wanting to go to the doctor’s office in an uncertain time, many employers are finding themselves in a position of receiving a credit from their benefit carrier(s). The question now becomes, “what do we do with it?”
Although the Department of Labor (DOL) has yet to issue specific guidance on how to address these premium credits under ERISA, employers should defer to the Technical Release 2011-44 issued by the DOL regarding guidance for Medical Loss Ratios (MLR) rebates as the same general fiduciary rules should be applied.
Under ERISA, employers receiving premium credits are bound to their fiduciary obligations. This means: the credit amount received by the carrier is considered a plan asset and must be used to the exclusive benefits of the plan’s participants. An employer’s options in re-distributing this credit to participants will depend on how the contribution schedule is set up. For example:
- If the employer paid the entire cost of the insurance, then no part of the credit would be returned to the employees;
- If the participants paid the entire cost of the insurance, the entire credit would be returned to participants;
- If the participants and employer each paid a percentage of the cost, the credit would be re-distributed in equal percentages relative to the contributions made by each party; or
- The employer can decide to place the credit in a trust to enhance plan benefits or reduce future plan participant premiums.
Regardless of how an employer’s contribution schedule is set up or what decision is made to move forward with a credit, the allocation of the credit must occur within in three (3) months of receipt, or the credit must be placed in a trust for future use. If the decision is made to not refund the participants directly, employers may want to consider a communication to employees regarding the intended use of the credit. This will ensure there is full employer transparency in the event a carrier reaches out directly to the participant regarding a refund.
The fiduciary responsibilities associated with the administration of an ERISA plan can be overwhelming and if not followed correctly, can lead to legal ramifications. If you receive a premium rebate from your carrier and are unsure what steps to take next, contact either your Account Manager or legal counsel.