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How to Determine if Your Company's Insurance Premium Credits Related to COVID-19 Are Plan Assets and What to Do Next

The COVID-19 pandemic has significantly decreased health care utilization as health care providers and patients canceled appointments and postponed elective procedures.  Because employees are not using their insurance benefits, some group medical, dental and vision carriers are providing employers with a credit against future premiums owed under their insurance contracts.

By, Donna Hill, E2E's Senior/Medicare Specialist & Compliance Director

The premium credits for group medical, dental and vision carriers are not the same as Medical Loss Ratio rebates. Medical Loss Ratio rebates are usually paid out to the employer. The premium credits are applied to future premiums. However, the same general rules apply to the Medical Loss Ratio rebates and the premium credits.

First, it must be determined what portion of the credit is considered a “plan asset."  Plan assets must be used solely for the benefit of the plan participants. Anything deemed a plan asset must be returned to the participants in some form.

Here are the conditions that determine plan assets:

  • If the employer paid 100% of the premiums (both employee and dependent), the credit is not a plan asset and may be retained by the employer.
     
  • If the participants paid 100% of the premiums, the entire credit amount must go to the participants.
     
  • If the premium was determined using a percentage (e.g. the employer pays 80% of the cost and the employee pays 20% of the cost) then the credit must be allocated using the same percentage.
     
  • If the employer paid a fixed amount (e.g. the employer paid $100 and the employee was responsible for the remainder), the entire credit must go to the participants, up to the amount paid by the participants.  Any amount above that goes to the employer.
     
  • If the participants paid a fixed amount (e.g. the employee paid $20 and the employer paid the remainder), the entire credit may be retained by the employer up to the total amount paid by the employer.  Any amount above that must go to the participants.

The credit may be shared with the participants in the form of a premium holiday or reduced payroll deductions.

The E2E Benefits team of experts is here to help you with urgency and compassion. Let us know your questions. We'll provide answers and are ready to discuss insurance and benefit updates to support you and your employees.

Disclaimer - This summary contains general information only and is not intended as legal advice.  Consult your attorney for legal advice pertaining to your company and situation.

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