Health Insurance Rebate, Coding and Guidance

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Health Insurance Rebate, Coding and Guidance

Coding and Guidance Regarding Health Insurance Premium Rebates issued Pursuant to the Affordable Care Act

The Affordable Care Act (health reform law) requires health insurance companies to rebate part of the premiums it received (beginning in 2011) through employer or group policy holders. If health insurance providers do not expend at least 80 percent of the premiums it receives on health care services such as doctors and hospital bills, and activities to improve health care quality, such as efforts to improve patient safety it must rebate a portion of the premiums it received. The Act requires that no more than 20 percent of premiums be spent on administrative costs such as salaries, sales and advertising. (For Large Group Plans the ratio is 85/15). This is referred to as the Medical Loss Ratio. The Medical Loss Ratio is calculated on a state by state basis. Rebates to employers must be made by August 1 of the following year. This should be recorded as a receivable as of June 30.

Coding the revenue:

Fund 10 – If a district does not have a Fund 73 established, code to Revenue source 990 (10-XXX-990-500000-000). 

Fund 73 – If a district pays premiums for retirees and utilizes Fund 73, it needs to record a pro rata share of the rebate to Fund 73, Source 990.

                       

           

After the employer receives the rebate it has 2 options for distributing the rebate back to the employees:

           

1. Reducing the premium for the upcoming year;
2. Providing a cash rebate to employees or subscribers that were covered by the health insurance on which the rebate is based.

If the employer chooses to refund a portion of the rebate to all eligible employees then it should record a payable as of June 30 and each employee’s portion should be recorded as an expenditure to the Function codes where the employee’s payroll is currently being charged.

If the employer chooses to reduce future year’s premium costs by the amount of the rebate then no payable would be recorded as of June 30. Reductions in future premium costs would be accounted for prospectively in the form of reduced premium expenditures during the following year.