Under the Patient Protection and Affordable Care Act of 2010, health insurances companies are required to spend at least 85 percent of large group revenue and 80 percent of individual and small group revenue on health care and quality improvement efforts or else pay rebates. Employers should talk to their legal advisors before deciding how to use the money.

Ballard Spahr’s Brian M. Pinheiro and Edward I. Leeds are two attorneys who advise on the issue. They say that the U.S. Department of Health and Human Services, the U.S. Department of Labor, and the Internal Revenue Service have issued guidelines on how they want employers to use the rebates. Some of the guidelines apply to plans that are subject to the Employee Retirement Income Security Act and others apply to plans not governed by ERISA, such as state government plans, municipal plans, and church plans.

The lawyers note that, “Within the limits imposed by the regulations and other guidance, employers retain a meaningful level of flexibility with respect to the rebates they receive. Depending on how a group health plan is structured, an employer may be able to use the rebates it receives (or a significant portion of those rebates) to pay its own share of health insurance premiums.”