NJ Employers Expected to Get Healthcare Rebates

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The U.S. Department of Health and Senior Services announced that more than 220,000 New Jersey residents will receive a rebate averaging $104 this summer, under the Patient Protection and Affordable Care Act that requires insurance companies to return money to policy holders if profits or administrative costs exceed statutory medical loss ratios. When an employer receives a rebate, it must decide how much of the rebate belongs to the Plan (employer) and how much belongs to the participant (employee). In a simple case, this allocation can be based on the manner in which the employer and employee have shared in the cost of health care. The portion retained by the employer is not considered a plan asset and may be used at the discretion of the employer.

Employers have 90 days from receipt of the rebates to make payments to participants. Payments to participants are taxable income according to the IRS guidance. Accordingly, rebates are “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 health care premium contribution for a payroll period.  This approach has the same effect as the issuance of a check, resulting in an additional wages for withholding purposes.

Employers must decide whether to issue checks to employees or to utilize the offset approach. Click here for EANJ’s Guidance Document.