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Small Business Health Insurance Policyholders in Brentwood – What to do with the rebate checks?

In the next week many small businesses in Brentwood , Santa Monica and Pacific Palisades ,who offer health insurance will receive a rebate check from their health insurance carrier. Here are some helpful instructions how the rebate check might be distributed to your employees.
Assuming the average rebate will be about $75 per participant, issues to consider are as follows:

  • The rebates will be paid for the 2011 calendar year this summer. It is important to realize that insurance carriers will notify all participants, including former employees who participated in health plans in 2011, of the rebates. Accordingly, employers must be prepared to respond to former employees’ questions regarding their entitlement to refunds.
  • Employers may use the 2011 refunds for either employees in a health plan in “both” 2011 and 2012; or only those employees in a health plan in 2012. Most employers will probably only use the rebates for active employees in health plans in 2012. Once again, employers must be prepared to respond to former employees’ questions.
  • Employers will have 90 days from receipt of a check to make payments to participants.
  • Payments to participants will be taxable income according to Frequently Asked Questions issued by the IRS in April 2012. Accordingly, rebates will be wages for purposes of withholding taxes and compensation under most retirement plans.
  • As an alternative to issuing a check to participants, employers may reduce an employee’s salary reduction contributions for a payroll period. Thus, if an employee would normally pay $150 for their portion of the cost of health insurance, only $75 may be withheld from an employee’s salary for a given payroll period. This approach has the same effect as the issuance of a check, resulting in an additional $75 of compensation for withholding and retirement plan purposes.
  • Employers must decide whether to issue checks to employees or to use the offset approach.
  • Payroll must be aware of the need to make payments to participants since such payments could result in the need for manual payroll adjustments for all or a small portion of an employer’s population, depending upon the health plans being sponsored by an employer.
  • If the amount of a premium rebate is de minimis, an employer may determine that the cost of issuing checks will exceed the amount of the checks. In these situations, employers must determine the manner in which to use rebates, such as for wellness or other programs.
  • Remember, in Technical Release No. 2011-04 the DOL announced the rebate checks may be “plan assets” subject to the ERISA fiduciary rules. Therefore, all decisions regarding the use of rebates should be carefully documented.

As a practical matter, if a rebate check is for $75, and an employee pays 20% of the cost for health coverage with pretax dollars under a flex plan, then only $15 would be returned to the employee. Since this amount may be determined to be de minimis, an employer may determine a check is not required to be issued.

In preparation for the issuance of rebate checks, employers are encouraged to contact their tax consultant, broker and/or carrier for assistance.

One might ask why a discount could not given towards any future premium, as the rebate checks create not only for the insurance carriers but also for the small business owner additional administrative cost, which at the end create more cost.

Hopefully that helpful hint will it make it easier to handle the rebate checks and help to find affordable health insurance in  Bentwood, Santa Monica and Pacific Palisades.

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