The MLR mandate requires health carriers to spend at least 80 percent of their premiums on medical expenses for individuals and small groups, and at least 85 percent for large groups. Carriers must provide rebates to customers if these thresholds are not met.  The MLR reporting and rebate requirements apply to all health coverage, group and individual including grandfathered plans. They do not apply to self-funded (ASO) business.
It is important to note that MLR calculations and rebate determinations are categorized by market segment.  All plans are grouped by market (individual market, small group market, and large group market), and rebates are paid to all plans in the market if the minimum loss ratio is not met. 
If an employer group offers more than one plan to employees, rebates will be paid only on the plan(s) that don’t meet MLR, and the rebate should only be distributed to members on that plan.
How is MLR Calculated?
The basic calculation for determining the MLR is to divide the medical expenses of the plan by the earned premiums.  This will determine the percentage of revenue spent on claims costs.
Medical expenses are the cost of health care, including clinical services (claims) and activities to improve healthcare quality.
Earned premiums is revenue generated from plan premiums, minus state and federal taxes, licensing fees, and regulatory fees.
Percentage of revenue spent on claims is the percentage of medical expenses using the calculations established by HHS to determine if rebates are to be paid.
How are Rebates Determined?
If a plan expends more than the allowed amount on administrative expenses as compared to medical claims, a rebate will be required. All rebates must be distributed by August 1st, 2012
Small Group and Individual Plans(IFP)
With an MLR of 80% for small group and IFP subscribers, up to 20% of earned premiums (after adjustments) can be spent on plan administration expenses. If more than 20% is spent on plan administration, the difference must be returned to the employer group.  If rebates are due to IFP subscribers, the subscriber will receive a rebate check.
Large Group
With a MLR of 85% for large groups, up to 15% of earned premiums (after adjustments) can be used for administrative expenses. If more than 15% is spent on plan administration, the difference must be returned to the employer group.
Rebate example: If the MLR for a large group (51 or more employees receiving a W2 from the employer) is 75%, then10% of the premium (the difference of the 85% MLR threshold minus the actual MLR of 75%) must be paid back to the employer group by August 1, 2012 for distribution to its employees.
How will Rebates be Distributed?
Large and small employer groups will receive a single rebate check from the carriers and it will then be the employer’s responsibility to distribute the rebate to their employees according to the Department of Labor Rebate Regulations.

Three federal agencies have come out with regulations that employers, insurers and plan administrators need to comply with the Summary of Benefits and Coverage (SBC) provisions in the Patient Protection and Affordable Care Act of 2010 (PPACA).

The 150-page SBC final rule and an 18-page batch of SBC compliance guidance are set to appear in the Federal Register Feb. 14.

The regulation and compliance guidance implement Section 2715 of the Patient Protection and Affordable Care Act of 2010 (PPACA), which calls for the government to create a standardized health plan description document, to help consumers do a better job of shopping for coverage, by March 2012.

The SBC will include a summary of basic plan features, along with coverage examples that illustrate how a plan would work if an enrollee encountered situations such as having a baby or having to manage Type II diabetes.

Plans and insurers will have to provide SBCs along with plan application or enrollment materials and when policyholders or plan participants ask for SBCs.

The SBC requirements will take effect Sept. 23 for individual coverage and for group plan open enrollment periods that begin on or after Sept. 23, 2012.

For people who enroll in group plans for the first time or as a result of special circumstances, such as a birth or an adoption, the rule will apply on the first day of the first plan year that begins on or after Sept. 23, 2012.

Originally, federal agencies were hoping to get plans and issuers to comply with the SBC requirements in March 2012.

Officials are estimating the SBC requirements will cost health plans and health insurance issuers about $73 million per year.

The rule could affect  440 companies in the individual, small group and large group health insurance markets that cover a total of about 75 million, and the rule also could affect 77 million people in self-insured employer health plans along with 748 third-party administrators that help run self-funded health plans, officials say.

AGENCY REACTIONS TO COMMENTS

The agencies that have been developing the SBC regulations -- the Centers for Medicare & Medicaid Services (CMS), an arm of the U.S. Department of Health and Human Services; the Employee Benefits Security Administration, an arm of the U.S. Labor Department; and the Internal Revenue Service, an arm of the U.S. Treasury Department -- say they have received hundreds of comments reacting to an earlier SBC draft.

The general idea of coming up with the equivalent of a standard nutrition label for health insurance has broad support. Analysts at the Henry J. Kaiser Family Foundation, Menlo Park, Calif., have reported that about 70% of Republican adults polled in 2011 said they like the SBC concept.

Commenters from the insurance industry focused on matters such as persuading regulators to leave some types of plans or coverage issuers out of the SBC requirements and changing specific SBC content and formatting requirements.

Which Plans?

Several commenters asked regulators to exempt large group health plans or self-insured group health plans from the SBC requirements.

"Many of these commenters noted that such plans already provide a wealth of useful information, including a summary plan description and open season materials that accurately describe the plan and any coverage options," officials say in a preamble to the proposed SBC final rule. "However, the statute includes no such exemption for large or self-insured plans."

Making the SBC scope as broad as possible will help individuals compare the options available from different types of plans, officials say.

Personal Health Accounts

Officials also have answered questions about how the SBC requirements apply to personal health accounts such as health savings accounts (HSAs), health reimbursement arrangements (HRAs) and flexible spending arrangements (FSAs).

The SBC requirements do apply to HRAs, because HRAs are group health plans, but an HRA integrated with other major medical coverage need not send out its own SBC, officials say.

Similarly, an FSA provided along with major medical coverage need not send out its own SBC. But the medical plan-FSA SBC should indicate how the FSA will affect matters such as deductibles and copayments.

An HSA is not subject to SBC requirements, but the SBC for a high-deductible health insurance plan sold along with an HSA could indicate how the plan will work together with the HSA, officials say.

Beneficiaries vs. Participants

Some commenters wrote to federal regulators to ask about a potential SBC administrative nightmare: A PPACA provision that appears to require plans to provide SBCs for the beneficiaries of a plan, rather than the participants in the plan.

Commenters noted that the term beneficiaries includes the spouse and children of the holder of an individual policy and of a worker enrolled in an employer-sponsored group plan.

The commenters asked regulators to require that SBCs go only to plan participants, not beneficiaries, or that SBCs be provided to beneficiaries only upon request.

The statute is ambiguous, and the regulations require that SBCs be provided to both participants and beneficiares, officials say.

SBC providers usually can meet that requirement by sending a single SBC to a family, unless some beneficiaries in the family are known to reside at a different address, officials say.