Insurers that did not meet the Affordable Care Act’s (ACA) medical loss ratio (MLR) standard for 2025 were required to issue rebates to group health plan sponsors by September 30. For employers that received one, the compliance obligation does not stop at cashing the check. Under ERISA, most of them now have until approximately three months from the date they received the rebate. For those who received it on September 30, that means December 30, and the fiduciary analysis required before they can do anything with the money is not optional.
The MLR rules require fully insured health plans to meet minimum spending thresholds: 85 percent of premiums on clinical services and quality improvement activities for large-group plans, and 80 percent for small-group plans. Rebates apply only to fully insured arrangements. Self-funded and level-funded plans are not subject to MLR requirements.
According to a KFF analysis of preliminary insurer-reported data compiled by Mark Farrah Associates, carriers across commercial markets are estimated to have issued approximately $759 million in MLR rebates in 2026, down from $1.6 billion in 2025 and $958 million in 2024. The variation reflects the three-year averaging method used to calculate rebates. A carrier’s 2026 liability is based on its 2023 through 2025 performance, meaning profitable prior years can still generate a rebate obligation even when recent loss ratios have improved.
Most private-sector group health plans are subject to ERISA, and the statute treats a portion of most MLR rebates as plan assets, rather than employer income. The dividing line is employee contributions. If employees paid any share of premiums, the corresponding portion of the rebate is a plan asset and must be used exclusively for the benefit of plan participants and beneficiaries. Only employers who covered 100 percent of premiums, with no employee contribution, can retain the full rebate. When employees paid 100 percent of premiums, the entire rebate is a plan asset and must benefit participants.
The plan-asset portion must be used within three months of receipt to avoid triggering ERISA’s trust requirement. An employer that received its rebate on September 30, has until December 30 to act. One that received it earlier faces an earlier deadline. The Department of Labor’s Technical Release 2011-4 governs how these rules apply to MLR rebates specifically. It also does not recognize a de minimis threshold, any amount determined to be a plan asset carries the full obligation, regardless of its size.
The calculation is proportional. If employees contributed 30 percent of premiums during the MLR reporting year, 30 percent of the rebate is a plan asset. That figure should be calculated against total premium contributions for the period covered by the rebate, not the current plan year.
Three approaches satisfy the ERISA exclusive-benefit standard. The plan-asset portion can be distributed directly to participants using a reasonable, fair, and objective allocation method. It can be applied as a premium reduction for the next plan year. Or it can be used to enhance plan benefits. Direct cash distribution is always permissible but is frequently impractical when the per-participant amount is small, a common situation given that rebates are calculated across the carrier’s book of business rather than based on any individual employer’s claims experience.
Many employers opt for a premium holiday or a benefit enhancement precisely because the administrative cost of cutting individual checks often exceeds the per-person rebate value. That choice is permissible under ERISA, but it must be documented. The obligations employers carry when managing group health plan assets have drawn closer regulatory scrutiny in recent years, and fiduciary decisions around MLR rebates are not exempt from that attention.
Carriers typically notify covered employees directly when a rebate has been generated. That practice creates a practical pressure point: employees who learn a rebate exists will often expect to see their share before the employer has completed the plan-asset analysis. Advisors whose clients received a rebate this fall should confirm that the fiduciary analysis has been completed, an allocation method has been selected, and documentation is in place before the December 30 deadline closes.
Jay Kirschbaum, senior vice president and director of benefits compliance at World Insurance Associates, noted in the firm’s 2026 year-end compliance roundup that the plan-asset analysis, allocation method, and proof of use should all be retained. “While providing the employees a pro rata portion of the rebate is always permitted,” he wrote, “it is typically very burdensome, so employers seek other options.”
