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The Affordable Care Act’s Medical Loss Ratio (MLR) rules generally require fully insured medical carriers to spend at least 80% of premium dollars in the Small Group market, and at least 85% in the Large Group market, on health care services and activities that improve health care quality. In turn, these standards also limit how much carriers may spend on administration, marketing, agent commissions, and profits.

When a carrier does not meet the applicable standard, it must return a portion of the premium to the plan-sponsoring employer through an MLR rebate.

The Individual and Family Plan (IFP) market is also subject to an 80% MLR standard, though this column focuses specifically on employer-sponsored group coverage.

How MLR Rebates in the Group Market Are Determined

MLR calculations are not based on the claims experience of one employer. They are calculated using the carrier’s combined experience within a particular state and market segment. A rebate in the California Small Group market, for example, reflects the carrier’s overall California Small Group results – not whether one employer’s workforce had a particularly healthy or costly year.

Carriers report their MLR results annually based on a calendar-year reporting period. Notices and rebate payments for the 2025 reporting year are generally due by September 30, 2026.
 

Which Plans Are Subject to MLR Requirements?

The federal MLR rules apply to fully insured Individual, Small Group, and Large Group medical coverage.

They do not apply to self-funded employer plans because the employer, rather than an insurance carrier, is responsible for funding the claims. Level-funded plans are generally structured as self-funded arrangements and therefore are not subject to the same MLR rebate process that applies to fully insured group coverage.

What Happens When an Employer Receives a Rebate?

When a carrier owes an MLR rebate for group coverage, it will notify the employer and send the rebate directly to the employer. The employer then needs to decide what to do with it.

How much of the rebate should go back to employees generally depends on who paid the original premium. If employees contributed toward the coverage, a portion of the rebate will generally need to be used for their benefit. If the employer paid the full premium, it may be able to keep the rebate.

Rather than issuing small checks, many employers apply the employee portion toward future premium contributions or use it to provide another benefit to employees covered by the plan that generated the rebate. Employers should confirm the appropriate approach with benefits counsel when needed.

Carriers may also notify covered employees that they missed their MLR target and will be issuing a rebate. That can lead employees to assume a check is coming – and put pressure on employers to explain what happens next. In the group market, however, employees may receive the value of the rebate through lower future premium contributions or another benefit instead of a direct payment.

Common Ways Employers Use the Rebate

Employers generally have several options for using the portion of the rebate that must benefit employees who were covered by the plan that generated it:
•    Apply it toward future employee premium contributions.
•    Provide cash payments to those employees.
•    Use it toward another benefit for employees who were covered by the plan that generated the rebate.
The employer does not necessarily need to calculate a different amount for every employee based on exactly how much each person contributed. It should, however, use a fair and consistent approach for employees who participated in the plan that generated the rebate.

Employers should also act promptly. Department of Labor guidance generally calls for the employee portion of the rebate to be used or distributed within three months of receiving it.

COBRA Participants and Former Employees

COBRA participants who were covered by the plan should be included when the employer decides how to use the rebate.

Former employees may need to be included, too. However, when the rebate amounts are very small, employers are not generally expected to spend more tracking someone down and sending the payment than the person would receive. Advisors should recommend benefits counsel if the employer is unsure how to account for former employees.

Why Small Rebates Can Still Create Administrative and Tax Questions

Based on our annual carrier polling, most fully insured group carriers meet their MLR targets and do not need to issue rebates. When rebates are required, the amounts are often fairly small.

Even so, those small amounts can still create extra work for employers. If employees pay their premiums pre-tax through a Section 125 plan, either a cash payment or a temporary reduction in payroll deductions can affect how the amount is taxed.

Employers should check with their payroll provider or tax advisor before deciding how to distribute the rebate.

Helping Employers Handle an MLR Rebate

Benefits advisors can help employers understand why the rebate was issued, which employees may be connected to it, and the common ways rebates are handled.

Because the right approach can depend on how premiums were paid, who was covered, and whether former employees or COBRA participants are involved, employers should not rely on general educational information alone. Advisors should recommend that employers confirm their approach with benefits counsel and bring in payroll or a tax advisor when employee deductions or taxable income may be affected.
Employers should also keep a written record of what they decide and clearly explain to employees how the rebate will be used.

Carrier-Specific MLR Rebate Information for 2026 

Word & Brown is contacting our fully insured carrier partners in California and Nevada to determine whether they will issue MLR rebates for the 2025 reporting year.