Medical Loss Rebates & PCORI Fees

As part of the Affordable Care Act (ACA), certain requirements were put in place to help ensure that health insurance providers are using premium dollars efficiently and effectively. Two key components of this are medical loss rebates (MLR) and the Patient-Centered Outcomes Research Institute (PCORI) fees.

MLR rebates are issued by insurance providers that fail to meet the ACA’s MLR standards. The MLR standard requires that insurance providers spend at least 80% of premium dollars on medical care and quality improvement activities (85% for large group plans). If an insurance provider fails to meet this standard, they must issue rebates to policyholders.

There are several ways that an employer can distribute MLR rebates. They can provide a premium holiday, apply the rebate to reduce future premiums, distribute the rebate in a lump sum payment, or use the rebate to provide additional benefits to employees.

PCORI fees are another component of the ACA. These fees are used to fund the Patient-Centered Outcomes Research Institute, which is tasked with conducting research to help patients and healthcare providers make informed decisions about healthcare treatments and services.

PCORI fees are calculated based on the number of covered lives (employees and their dependents) in an employer-sponsored health plan. For plan years ending before October 1, 2021, the fee is $2.66 per covered life. For plan years ending on or after October 1, 2021, and before October 1, 2022, the fee is $2.91 per covered life. Employers are responsible for paying the PCORI fee, which is reported and paid annually on Form 720. The fee is due by July 31 of the year following the end of the plan year.

MLR rebates and PCORI fees are two important components of the ACA that help ensure that health insurance providers are using premium dollars efficiently and effectively. MLR rebates are issued by insurance providers that fail to meet the MLR standard, and employers have several options for distributing the rebates. PCORI fees are used to fund research to help patients and healthcare providers make informed decisions about healthcare treatments and services, and employers are responsible for paying the fee annually on Form 720.