last updated 3/7/2014
Update: On March 5, 2014, the Department of Health and Human Services released a Final Rule addressing, among other things, transitional reinsurance fees payable in the 2014 through 2016 benefit years. According to an analysis by Proskauer Rose LLP: "Of particular note is that the Final Rule exempted self-insured and self-administered plans from the transitional reinsurance fee for the 2015 and 2016 benefit years. This exemption could apply to any self-insured and self-administered plan, but it is generally perceived that larger multiemployer [union] plans are most likely to satisfy these requirements."
Employers will be allowed to pay the transitional reinsurance fee in two annual installments, the final rule clarifies.
The U.S. Department of Health and Human Services (HHS) has proposed allowing employer-provided health plans to pay the Affordable Care Act's (ACA) new per-capita transitional reinsurance fees through two annual installments. The proposal would also exempt union-managed plans from the fees.
The ACA requires the establishment of a transitional reinsurance program in each state to help pay for the cost of treating high-cost enrollees in the individual market from 2014 through 2016. Fees to support the program are assessed against both insured and self-funded group health plans, and will be paid by health insurance issuers for fully insured plans and by third-party administrators (TPAs) for self-funded plans.
The fees are intended to fund state reinsurance programs that oversee high-risk pools for the individual market. In March 2013, HHS issued a final rule on transitional reinsurance fees. The new proposed rule—published by HHS in the Dec. 2, 2013, Federal Register and explained in an accompanying fact sheet—would allow the insurer or third-party administrator to make reinsurance contributions in two installments to HHS.
The first installment would occur at the beginning of the calendar year following the applicable benefit year, and the second would occur at the end. This is intended to alleviate some of the upfront financial burden of the reinsurance contribution, a cost that insurers and TPAs are expected to pass along to plan participants in the form of higher premiums.
The annual fee, calculated based on the number of covered health plan participants, is $63 per participant in 2014, and will decrease in 2015 and 2016. The $63 rate is a national uniform contribution rate and does not vary by state.
For 2015, the per-participant rate falls to $44. HHS plans to establish the uniform reinsurance contribution rate for the 2016 benefit year in its notice of benefit and payment parameters for 2016, to be issued in late 2015.
Two Annual Payments
The total amount of transitional reinsurance program fees to be collected over the three-year period is $25 billion. Of this amount, $20 billion will fund the reinsurance program and $5 billion will be paid to the U.S. Treasury. The proposed change in the collection schedule would not affect the amount of funds collected for reinsurance payments.
According to the proposal, the amounts allocated to the U.S. Treasury are not needed to operate the transitional reinsurance program. Therefore, collecting these amounts later in the calendar year will not affect the program.
For the 2014 benefit year, of the $63 annual per-participant contribution rate, $52.50 would be allocated toward reinsurance payments and $10.50 toward payments to the U.S. Treasury. Thus, HHS contemplates that:
- If a health plan insurer or TPA submits its enrollment count for the 2014 benefit year in a timely manner (by Nov. 15, 2014), a reinsurance contribution payment of $52.50 per covered life would be invoiced in December 2014 and payable in January 2015.
- Another reinsurance contribution payment of $10.50 per covered life would be invoiced in the fourth quarter of 2015 and payable late in that quarter.
HHS proposes that for the 2015 benefit year, the proposed $44 annual per-capita contribution rate be allocated with $33 going toward reinsurance payments and $11 toward payments to the U.S. Treasury. These amounts would similarly be payable in January 2016 and late in the fourth quarter of 2016, respectively.
HHS also said it is considering a variation of this proposal under which health plans would be provided the option of paying the entire reinsurance contribution amount with the first installment, at the beginning of the calendar year following the applicable benefit year. HHS will accept public comments on the proposal through Jan. 2, 2014.
Union Plans Given Fee Exemption
Controversially, HHS also proposed excluding from the obligation to make reinsurance contributions any "self-insured, self-administered plans" that do not use a third-party administrator for claims processing or adjudication. Critics charge that this is designed specifically to exclude union-managed health plans from the fee.
In mid-November, as word of the upcoming proposal began to circulate, 21 Republican senators signed a letter to the administration stating, “The regulation makes no justification as to why union members should be exempted from this fee while other similarly situated organizations (and, ultimately, their beneficiaries) must continue to pay it,” reported The Hill.
The exclusion for union-managed "Taft-Hartley" health plans causes the per-capita fees paid by other employer-provided health plans to rise in order to meet the program's revenue requirements, critics charged.
On Nov. 19, 2013, Sen. John Thune, R-S.D., chairman of the Senate Republican Conference, introduced the Union Tax Fairness Act to prevent the administration from exempting unions from the transitional reinsurance fee. The act is unlikely to become law given the Democratic-controlled Senate but expresses GOP opposition to the administration's action.
The ERISA Industry Committee (ERIC), in comments submitted to HHS, urged that "Any change to HHS's long-standing position on application of the reinsurance fee should apply fairly and impartially to all self-insured group health plans."
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Related External Article:
HHS Announces Transitional Reinsurance Fee for 2015 and Payment Schedule, Towers Watson, December 2013
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