January 7, 2013
The Department of Health and Human Services (“HHS”) recently issued proposed regulations that estimate the amount group health plans will have to contribute to fund transitional reinsurance programs and provided guidance on how plans will calculate the fees. HHS issued final regulations on the transitional reinsurance program earlier in 2012, but did not address the contribution amounts. Please see April 27, 2012 theHRBenefitsAuthority, Health Care Reform: New Reinsurance Fees for Group Health Plans for more information.
Background. For 2014 through 2016, the Health Care Reform Act (HCRA) requires a transitional reinsurance program to be established in each state to stabilize premiums for individual health insurance coverage offered through the Health Insurance Exchanges. Health insurance carriers and third party administrators or “TPAs” (on behalf of self-funded group health plans) are responsible for making reinsurance contribution payments to fund the state transitional reinsurance programs.
On a national basis, fees collected through the reinsurance program must total $10 billion for 2014, $6 billion for 2015 and $4 billion for 2016. Health Care Reform also requires HHS to collect additional reinsurance fees to offset the cost of the Early Retiree Reimbursement Program (the “ERRP”) in the amount of $2 billion for 2014, $2 billion for 2015 and $1 billion for 2016. Fees may be collected to cover administrative costs.
Calculating the Fee. The reinsurance contribution is calculated by multiplying the average number of covered lives (i.e., enrolled employees/pre-65 retirees and their dependents) in the group health plan by the national contribution rate for the applicable year. The proposed regulations outline several methods for calculating the average number of covered lives in a given year. For example, a self-funded group health plan can generally use the average of the number of participants covered at the beginning and end of the plan year as reported on the plan’s Form 5500 for the prior plan year.
Each year, the national contribution rate will be calculated by dividing (i) the sum of the national reinsurance pool, the ERRP contribution and administrative costs, by (ii) the estimated number of enrollees in plans that must make reinsurance contributions. HHS estimates that the annual national contribution rate for 2014 will be $63 per covered life. Based on this estimate, a self-insured medical plan covering 50,000 lives would owe a transitional reinsurance fee of $3.15 million for 2014. Generally, these payments are deductible as ordinary and necessary business expenses.
Affected Plans. Under the proposed rules, a group health plan for purposes of the reinsurance fees includes grandfathered group health plans but does not include: (i) plans that offer coverage solely of “excepted benefits” as defined by HIPAA (e.g., coverage for a specified disease or stand-alone vision or dental coverage), (ii) integrated HRAs that are offered with major medical coverage, (iii) health savings accounts (HSAs), (iv) health flexible spending accounts (FSAs), (v) stop loss coverage, or (vi) employee assistance plans, disease management or wellness programs, which do not provide major medical coverage.
Annual Report. Under the proposed rules, each self-insured group health plan (or TPA on behalf of the plan) and insurance carrier must submit an annual report, detailing the average number of covered lives, to HHS no later than November 15 each year. HHS will then use this number to calculate the national contribution rate. Within 15 days of the submission of the annual reports or by December 15, whichever is later, HHS will notify each responsible entity of the reinsurance contribution amount due for that year. The applicable reinsurance contribution will then need to be remitted to HHS within 30 days of the notification.
Action Steps. We recommend that employers budget accordingly for these fees based on HHS’s proposed estimates. Importantly, the fee amount of $63 per covered life in the proposed rule is only an estimate. This amount could significantly increase if the number of covered lives reported by November 15, 2014 is less than HHS’s estimates. Thus, it may be difficult for group health plan sponsors to properly budget and account for fees in 2014.
Contact Information. For more information from Mazursky Constantine, please contact Amy Heppner (404.888.8825), or Kelly Meyers (404.888.8838).