MLR Rebate

• Insurance premiums are used by an insurance company to pay for one of two categories of services –clinical healthcare services or administrative costs. The percentage of premiums spent on healthcare services is called the Medical Loss Ratio (MLR). 
• If too large of a percentage of premiums is spent on administrative costs instead of clinical healthcare services, health services for the insured may suffer. To prevent this, the Patient Protection and Affordable Care Act mandates that rebates be paid to insured individuals if at least 80% of premium dollars in the individual market (or 85% in the large group market) are not spent on clinical healthcare services.

• Rebates are determined on a state-by-state basis. Rebates are based on the claims and premiums for a group of policies in a state from the previous calendar year.

• The MLR rebate is taxable if you paid health insurance premiums with pre-tax dollars, such as a Health Savings Account, or if you received tax benefits by deducting premiums you paid on your Form 1040 tax return form.
• The MLR rebate is not taxable if you paid health insurance premiums with post-tax dollars or if you did not take a deduction on your Form 1040 tax return form for your premiums paid.
• Speak with your tax preparer to determine if you need to report your rebate as income when you file your next Form 1040 tax return form.

Seek a tax advisor for more detailed assistance.

• You will most likely not receive a Form 1099-MISC; however, certain circumstances require that CCHP sends you a 1099-MISC.
• Current IRS regulations state: You will receive a Form 1099-MISC from the health insurer if (1) the MLR rebate is $600 or more for the year, and (2) the health insurer knows that the rebate payment (or a portion of the payment) is taxable to you as the individual policyholder. If the insurer is required to file a Form 1099-MISC with the IRS after meeting the above requirements, the company will provide a copy of the Form 1099-MISC to the individual policyholder.
• While additional clarification has been requested, this issue is open to interpretation. Consult your tax advisor for more assistance. CCHP is not provided with information regarding the use of pre-tax dollars, therefore, it is unlikely CCHP would be able to know if a rebate is taxable.

• According to CMS, current guidance for the individual market requires the health insurer to refund the entire rebate to the policyholder regardless of whether the premium was subsidized by an Advance Premium Tax Credit (APTC). One notable exception applies in states that elected to expand Medicaid through ACA marketplaces; however, Wisconsin is excluded from this exception.
• Form 8962 Premium Tax Credit is included with an individual’s Form 1040 to determine the amount of premium tax credit and reconcile it with the APTC. Please consult with your tax advisor regarding the impact of the rebate on your credit.
• Please refer to the flow chart for basic direction, and consult your tax advisor for detailed assistance.

• When you pay for benefits, including health insurance, with pre-tax (also called before-tax) dollars, such as a Health Savings Account, the deductions are taken off your gross income before the calculation of income tax and after-tax deductions. Taxes are calculated based on this reduced taxable income amount (i.e. gross income minus pre-tax dollars). 
• Having pre-tax dollar deductions results in less income tax paid than would otherwise be the case.
• An example of pre-tax dollars is the use of a Health Savings Account.

• Be sure to seek a tax advisor for more detailed assistance on how this MLR rebate may impact your individual tax status.