• Call: (888) 472-4262
  • Client Access
Graham Company
  • Call: (888) 472-4262
  • Who we work with
    Construction Manufacturing & Distribution Health & Human Services Real Estate Financial & Professional Services Other Industries
  • What we do
    Property & Casualty Employee Benefits Surety Services Personal Lines Cyber Solutions Our Specialties
  • Who we are
    Our History Our People Our ESOP Our Community
  • Our Difference
    The Graham Way Innovation Technical Development Safety Services Claims Management
  • Careers
    Our Job Board
  • Knowledge Center
COVID-19: How Should Employers Handle Carrier Premium Credits?

June 11, 2020

COVID-19: How Should Employers Handle Carrier Premium Credits?

Many fully-insured carriers are offering premium credits, temporarily reducing future monthly premiums. It started with carriers offering these premium credits for group dental and vision coverage, and now some carriers are offering similar credits for group medical premiums. Employers receiving such credits are asking how they must be handled. May the employer simply keep the credit, or is there an obligation to share some or all of the credit with plan participants?

If the employer pays 100% of the premiums for employees and their dependents, the employer can keep the credit and use it for any business purpose. Easy. But if employees contribute to the monthly premium cost, which is the more common scenario, it may not be possible for the employer to simply retain the credit. If plans are subject to ERISA, the premium credit is likely to be considered plan assets, in which case the funds must be used solely for the benefit of plan participants and beneficiaries by providing benefits or defraying reasonable expenses of plan administration. Mishandling of plan assets is a prohibited transaction under ERISA and could result in personal civil and even criminal liability for the employer and its owners. And even if the plan is not subject to ERISA, similar risks may apply under applicable state law. In addition, if carriers are advertising these premium credits, choosing not to pass along at least a portion of the temporary reduction in premium costs to employees could turn into an employee relations issue.

We haven’t received any specific guidance about how to deal with these premium credits from the agencies. This may not be popular advice, but until we receive further guidance, we’re assuming that these credits will need to be handled similarly to MLR rebates, likely requiring a cash distribution or premium holiday, to the extent that the premiums are paid by employee contributions.

If we treat these credits as plan assets like we do MLR rebates, it’s first necessary to determine what portion of the credit may be considered plan assets. For example, if employees generally contribute 50% of the monthly premium cost, then 50% of the credit should be treated as plan assets (the employer may keep the other 50%). We’re not aware of any de minimis amount that would allow the employer to simply retain these premium credits; we would recommend a distribution regardless of the size of the participants’ pro rata portion. For the portion considered to be plan assets:

1.If the plan document specifically addresses carrier rebates or credits and allows the employer to retain these types of refunds, the employer would be permitted to keep the funds and use them for any business purpose. However, most plans are silent about carrier rebates or credits. This is something the employer might want to address in plan documentation for future plan years.

2.Assuming that the plan document is silent about these types of carrier credits and that employee contributions are involved, the employer should return a pro rata portion of the credit to employees within 90 days to avoid having to hold them in trust. Employers typically distribute the employee’s portion as a cash payment or as a reduction in future premium contributions (a “premium holiday”). We don’t recommend that employers distribute rebates or credits as a “benefit enhancement.” Although that is one of the options listed under DOL guidance for MLR rebates, it’s not clear how it should be handled as such, or how to avoid ERISA trust requirements; e.g. how is it distributed within 90 days?

For additional COVID-19 resources and risk management recommendations, please visit our COVID-19 Risk Management Center.

A PDF of the above information can be found here.

Daniel R. Jordon
Employee Benefits Managing Director
djordon@grahamco.com
The Graham Building
Philadelphia, PA, 19102
(215) 701-5289
SAVE AS PDF >
Share:
Tags: Insurance COVID-19 Premium Credits ERISA
RECENT POSTS
Diversity, Equity and Inclusion’s Vital Role in Risk Management and Success
Diversity, Equity and Inclusion’s Vital Role in Risk Management and Success

Jul 25, 2022

Hurricane Preparedness is Key to Managing Risk
Hurricane Preparedness is Key to Managing Risk

Jul 21, 2022

Frequently Asked Questions re: Impact of Dobbs on Employer-Sponsored Health Plans
Frequently Asked Questions re: Impact of Dobbs on Employer-Sponsored Health Plans

Jul 08, 2022

New Year, New Rules: Healthcare Transparency Rules and Plan Sponsor Obligations
New Year, New Rules: Healthcare Transparency Rules and Plan Sponsor Obligations

Apr 05, 2022

RELATED POSTS
Risk Playbook: Episode 5 - Susan Hatten
Risk Playbook: Episode 5 - Susan Hatten

May 26, 2022

NYCIRB Announces Withdrawal from the NCCI Experience Rating Plan
NYCIRB Announces Withdrawal from the NCCI Experience Rating Plan

Mar 17, 2022

State of the 2022 Insurance Market
State of the 2022 Insurance Market

Mar 09, 2022

Special Purpose Acquisition Companies (“SPACs”): A Unique Challenge for Directors and Officers Liability Insurance Programs
Special Purpose Acquisition Companies (“SPACs”): A Unique Challenge for Directors and Officers Liability Insurance Programs

Jul 01, 2021

Home
Contact
Events
Company News
News
Branding
Privacy Policy
Graham Company

Follow us

Graham Company
Home
Contact
Events
News
Branding
Privacy Policy

Follow us

Sign up for our Newsletter!

Thank you for your submission.

Sorry! something went wrong. Please try again.

© Copyright . The Graham Company. All Rights Reserved. Site by Brand X Republic