HCR Transitional Reinsurance Fee to be $63 per Health Plan Participant in 2014

HHS issued regulations on November 30, 2012 setting the 2014 annual Transitional Reinsurance Program fee at $63 per health care plan participant (this includes employees and dependents). For fully-insured plans this fee will be paid by insurers and built into the rates for 2014; self-funded plans are liable for the fee but may use third-party administrators to remit the fee on behalf of the plan sponsor. The transitional reinsurance program was created by the Affordable Care Act (ACA, section 1341)) to collect $25 billion in fees from group health plans during 2014-2016 to partially reimburse insurers in the individual market who cover high-cost individuals. The reinsurance fee should be phased out in 2017, unless Congress extends it before then.

Why must Employer-Sponsored Plans Pay a Fee that will go to Insurers that Provide Individual Health Policies?

ACA Section 1341(c)(1)(A) states that the purpose of the reinsurance contributions is “to help stabilize premiums for coverage in the individual market” during the first three years the individual Exchanges are in operation, “when the risk of adverse selection related to new rating rules and market changes is greatest.” Insurers that end up covering more than their share of high-cost individuals in the Exchange will be eligible for reimbursement of a percentage of claims that exceed a specified attachment point.

What is the Annual Contribution Amount?

The annual per participant fee for 2014 will be $63 ($5.25/month) and will decrease in 2015 and 2016. The rate was calculated by dividing the 2014 annual amount of $12 billion (set by the ACA) by the estimated number of enrollees in plans required to make transitional reinsurance contributions. The $63 rate is a national uniform contribution rate and does not vary by state.

For 2015 the statutory amount is $8 billion, and for 2016 it is $5 billion. The regulations do not specify the rates for 2015 or 2016, but health care analysts have estimated the 2015 rate to be about $42 per participant and the 2016 rate to be about $26, based on the calculation methodology. The regulations specify that the National per Capita Reinsurance Contribution Rate is calculated by dividing the sum of: (the National reinsurance pool + the Treasury contribution + Administrative costs) by the estimated number of enrollees in plans required to make reinsurance contributions.

What Plans are Subject to –and Exempt from—the Annual Fee?

Only “major medical” plans are required to pay the reinsurance contribution. The preamble to the regulations defines these as plans that provide coverage for a broad range of services and treatments, including diagnostic, preventive, medical and surgical services, which may be provided in an inpatient, outpatient or emergency room setting.
Plans that will not be required to pay the reinsurance fee include:

HRAs and HSAs that are integrated with high-deductible health plans (HDHPs). Only the underlying major medical HDHP would pay the annual reinsurance fee.
Health flexible spending accounts (FSAs).
Employee assistance programs (EAPs), disease management and wellness programs that do not provide major medical coverage.
Coverage that provides only “excepted benefits” – such as stand-along dental or vision plans, hospital indemnity or dread disease coverage.

What Plan Participants are Counted in Calculating the Annual Fee?

Major medical plans must count enrolled employees and their enrolled spouses and dependents, COBRA “qualified beneficiaries,” and enrollees in employer-sponsored retiree medical plans who are not yet eligible for Medicare. Plans do not have to count retirees who are enrolled in Medicare and also have supplemental employer-provided coverage, nor do they count individuals who are enrolled in both Medicare and employer-sponsored coverage for whom Medicare pays primary. (An example would be a COBRA QB who is also enrolled in Medicare.)

Who is Liable for the Fee and how will it be Collected?

Liability varies depending on whether the plan is fully-insured or self-insured.

Fully-insured major medical plans– insurers are responsible to pay the reinsurance fee, although they have already indicated they will just add the fees into the rates.
Self-insured major medical plans– plan sponsors are liable for the fee but may use third-party administrators or administrative-services-only contractors to remit the fee on behalf of the plan sponsor.

The reinsurance fee will be collected annually by HHS. This is a change from prior guidance which provided for quarterly collection of the fees. The collection process and timeline is as follows:

By November 15, 2014: Contributing entities (i.e., plans and insurers) must send headcount information to HHS.
By December 15, 2014: HHS will send bills to the entities.
Within 30 days after receiving the bill: Contributing entities must pay the reinsurance contributions to HHS. Thus, contributions for 2014 will not be due until approximately January 15, 2015.

The same timeframe applies for 2015 and 2016.

Is the Reinsurance Fee a Tax-Deductible Expense?

Yes, the fee generally is a tax-deductible expense to plan sponsors and insurers. The IRS FAQs specifically allow plan sponsors and insurers to treat the contributions as “ordinary and necessary business expenses,” which means they are generally a tax-deductible expense, subject to any applicable disallowances or limitations under the Tax Code. Additionally, HHS guidance says the Department of Labor has said the reinsurance contributions are a valid plan expense under ERISA.

Other government guidance: HHS/CMS Fact Sheet.