Frequently Asked Questions about MLR Rebates

Medical Loss Ratio (MLR) is the percent of premiums an insurance company spends on claims and expenses that improve health care quality. The Health Care Reform law requires insurance companies to pay annual rebates if the MLR for groups of policies issued in a state is less than 85% for large employer group policies and 80% for most small employer group policies and individual policies.

The MLR provision is intended to ensure that a minimum percent of premiums are used to pay claims. This limits the amount insurance companies can spend on administrative expenses and profits.

Rebates are determined on a state-by-state basis. 2012 rebates are based on all the premiums and claims for a group of policies issued by an insurance company in a state in 2011. Rebates are not based only on the claims for your own policy.

• If claims for all policies similar to your size in your state in 2011 were lower than the required MLR percent, you will receive a rebate.
• If claims for all policies similar to your size in your state in 2011 were higher than the required MLR percent, you will not receive a rebate.

Cigna sets premiums each year based on the amount of claims we expect to pay. Variations in the actual claims in 2011 resulted in some groups of policies not meeting the MLR requirement and receiving rebates. If you are not receiving a rebate, it means a high percentage of the premiums for policies in your group were spent on health care, so no rebate is due.

If Cigna pays a rebate for the group of policies in your state that includes your policy, the total rebate amount was divided based on the amount of premiums each policyholder paid.

If you are eligible for a rebate and have an individual policy, the rebate will be sent to you. If you have medical coverage through your employer, any rebate due will be sent to your employer in most cases.

If your letter says you will be receiving a check, Cigna will mail checks beginning July 26, 2012. You will know the amount of your rebate when you receive your check.

If your letter says the rebate will be paid to your employer or group policyholder, your employer is responsible for determining how to use the rebate the company receives to benefit participants in your medical plan.

Employers can use rebates to reduce future premiums, enhance benefits or issue rebate checks to you and other participants in your group medical plan. Contact your employer for information on how your rebate will be used.

If you have questions about a rebate paid to your employer, contact the person at your company who typically answers benefit questions for more information.

In general, rebates are taxable if you pay premiums with pre-tax dollars or you received tax benefits by deducting premiums paid in 2011 on your 2011 tax return. Talk with your tax preparer to determine if you need to report your rebate as income when you file your 2012 tax return.

In general terms, the formula for calculating MLR for a group of policies in a state is:

Claims + Expenses that Improve Health Care Quality
                         Premiums

Common types of expenses that count as expenses that improve health care quality include:

• Programs to help individuals manage serious conditions such as cancer or heart disease
• Hospital discharge planning designed to reduce hospital readmissions
• Activities to improve patient safety and reduce medical errors
• Health assessments and wellness coaching designed to manage a health condition or achieve measurable health improvements

Rebates are determined by three factors:

• The insurance company that issued the coverage
• The state in which the policy was issued
• The number of people covered – large group, small group or individual covera

There are several reasons why you and your neighbor could have different rebate experiences.

• You and your neighbor could have medical coverage through different insurance companies (Cigna, Blue Cross, etc.).
• If you both have Cigna coverage, one of you may have employer group coverage while the other has an individual policy, and different MLR requirements apply.
• If you have coverage through your employer, the policy may have been issued in a state other than the state where you live. For example, your employer’s policy could have been issued in New York where Cigna paid rebates while your neighbor’s employer could have purchased its policy in Iowa where Cigna did not pay rebates.