The Affordable Care Act limits how much health insurers can spend on administrative costs - like salaries, advertising and sales – to no more than 20 percent of every premium dollar. If a carrier doesn’t pay out 80 percent of premiums on a statewide basis for actual health care services, they are required to rebate the difference.

Here’s how a well-intended rule causes headaches.

One of our clients just recently received a rebate. They have 18 people on their group health plan and the check was for $426. Who gets the money?  The answer depends on who pays the premium. What if the employer and employee split the premium? Do you rebate the same amount to employees who pay for single or family coverage? Do you have to track down employees who left during the rebate year? Are the amounts distributed reported as income?

Note that insurers are also required to send a letter to each covered employee letting them know about the rebate, so they’ll be waiting for their ‘windfall.’ At minimum, use the funds for some form of benefit enhancement or premium ‘holiday’ and make sure you communicate how the rebates are being spent. IRS guidelines are here.

Pass the aspirin!

P.S. I got my flu shot this week. It’s a preventive benefit covered at 100% by my health plan. Yours too. What are you waiting for?