Among the variety of new health reform fees affecting group health plan sponsors is the "reinsurance fee." The reinsurance fee is meant to buffer "adverse selection" for health insurance companies participating on the exchange. (Loosely defined, adverse selection results when a health insurance buyer understands his or her own potential health risk better than the health insurance issuer does -- being able to "game" insurance, causing a health insurance carrier higher costs than usual.) Although in many cases insurance carriers and third party administrators will do the count and pay the assessment on behalf of a group health plan, the final cost is sure to be passed through to end-user employers sponsoring health plans.
As implementation of the new fee draws closer, the U.S. Department of Health and Human Services (HHS) recently issued final rules that closely mirror the proposed regulations governing the transitional reinsurance program. Finalized changes include a revised fee payment schedule, a self-insured, self-administered exception and a definition for major medical coverage. (Please reference the two prior HUB International Client Bulletins in Helpful Links explaining the reinsurance fee and which contain additional details about the assessments.)
During the first three years that state health insurance exchanges (sometimes also called "Marketplaces") are operational (2014 through 2016), health insurance carriers and plan administrators (on behalf of self-insured group health plans) will be assessed a per-covered life fee to finance a three-year transitional reinsurance program. The contribution rate for 2014 is $63 per covered person for the year. (The fee for 2015 has been set at $44 per covered life, with the amount for 2016 not yet determined.)
The agency previously communicated that the fee would be payable after the sponsors of self-insured plans reported the average number of covered lives to HHS by November 15, of 2014, 2015 and 2016, respectively. The agency would then advise the plan of the program fees with the required contribution amount due to HHS within 30 days of being invoiced.
Amount and Timing of Contributions
The newly issued final regulations provide the payment of the transitional reinsurance fee will be broken down into two invoices per plan per each calendar year:
- Installment 1: Payment for the actual reinsurance fee ($52.50 per average covered life).
- Installment 2: A $10.50 per covered life portion of the fee paid separately to reimburse the U.S. Treasury for the costs of the early retirement reinsurance program (ERRP).
The first payment will be due based on when the plan sponsor provides the average covered life count and when HHS invoices the plan. The second payment is expected in the fourth quarter of the following calendar year.
Example: For 2014, Plan Sponsor A submits its covered life count by November 15, 2014. HHS then invoices the plan for its reinsurance amount as of December 15, 2014. The first installment of $52.50 per covered life will be due by January 13, 2015 (30 days from the date of invoice). A second installment of $10.50 per covered life is due late in the fourth quarter of 2015.
Self-insured, Self-administered Exemption
As proposed in previous regulations, HHS creates a somewhat controversial exemption from the 2015 and 2016 transitional reinsurance fee for self-insured, self-administered plans that is now embodied and finalized in these regulations, and which appears to favor certain union-operated plans. Specifically, the exemption applies to "self-administered plans" are defined as those that "do not use a third party administrator for claims processing, adjudication or plan enrollment services." Unfortunately, while this exemption sounds helpful, the reality is that few plans will actually qualify, apart from multiemployer plans. So, although not making a direct reference to multiemployer plans, this exception is generally perceived as creating a limited relief zone targeted to benefit such plans. In fairness it should be noted that a self-insured self- administered plan does not need to be collectively bargained to qualify for the exemption, but the fact is that multiemployer plans are optimally positioned to take advantage of this rule.
Questions still abound as to which benefit plan the transitional reinsurance fee applies. The fee is only applicable to "major medical coverage" which the final regulations define as health coverage for services and treatments provided in various settings that provides minimum value. Minimum value under health care reform is a plan whose share of total allowed costs of plan benefits is at least 60 percent. Applying these standards, major medical coverage would exclude stand-alone programs such as employee assistance (EAPs), wellness and disease programs, and any supplemental coverage not satisfying minimum value, including a benefit plan that only provides minimum essential coverage.
Based on the proposed regulations, the final regulations really do not present any particular surprises. In staying the course in determining their average number of covered lives for 2014 plan sponsors should review the definition of major medical coverage to determine which benefits are subject to the transitional reinsurance fee. The clarification of when the fee installments are due should assist a plan sponsor in its budgeting for plan years 2015 and 2016. The final regulations also underscore how strategic PPACA planning is fast becoming more imperative than ever. Specific actions must be taken, and many more should be taken, to mitigate the financial impact of fees like the one described in this Bulletin. We invite you to schedule a meeting with your HUB International adviser to review your organization's particular circumstances and decide on the optimal financial and compliance strategy.
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The discussion presented in this document is informational in nature and is not (and should not be construed as) a legal opinion or legal advice. We would be happy to discuss any information above with you or your attorney.