The Transitional Reinsurance Program was created by the Affordable Care Act (ACA) section 1341 to help stabilize premiums in the individual market in 2014-2016. It is intended to collect $25 billion in fees from group health plans during 2014-2016 to partially reimburse insurers in the individual Exchange/Market who cover high-cost individuals.
The Transitional Reinsurance Program Fee (reinsurance fee) applies as of January 1, 2014 to both insured and self-funded “major medical” plans (further defined below). The fee applies as of January 1 regardless of the plan year or policy year. The Obama Administration issued guidance in October and November 2013 that will exempt certain self-insured, self-administered plans from the reinsurance fees in 2015 and 2016. It appears that all or most of the exempt plans will be multi-employer union plans.
For 2014 the reinsurance fee will be $63 per health care plan participant (this includes both employees and dependents) and will decrease in 2015 and 2016. The bulk of the 2014 fees will be due in mid-January 2015, and the balance will be due in December 2015. The reinsurance fee will be tax-deductible as an ordinary business expense. For fully-insured plans, this fee will be paid by insurers and added onto the rates; self-funded plans are responsible for the fee but may use third-party administrators to remit the fee on behalf of the plan sponsor.
Several sets of regulations have been issued on the transitional reinsurance fee, most recently October 24, 2013 guidance, and November 24, 2013 Notice of Benefit and Payment Parameters proposed rules. This white paper reflects guidance issued through November 2013. The following questions and answers provide additional details on the reinsurance fee.
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 Amount of the Reinsurance Fee?
The annual per participant fee for 2014 is $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 the annual per participant fee is $44. For 2016 the annual amount is $5 billion and the annual per participant fee has not yet been determined, but is estimated to be approximately $26-$28 based on the calculation methodology.
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. Both insured and self-insured plans are subject to the reinsurance fee; however, as noted above, for 2015 and 2016 self-insured plans will be exempt if they also self-administer claims.
Plans that will not be required to pay the reinsurance fee (because are not considered “major medical” plans) include:
- Coverage that provides only “excepted benefits” – such as stand-alone dental or vision plans, hospital indemnity or dread disease coverage.
- 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 (HFSAs).
- Employee Assistance Programs (EAPs), disease management and wellness programs that do not provide major medical 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?
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 most (if not all) insurers are just adding the fees onto their 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. Certain self-insured plans will be exempt from the fee in 2015 and 2016.
How will the Reinsurance Fee be Collected?
The reinsurance fee will be collected by the Department of Health and Human Services (HHS). Recent guidance has changed the timing of when the fee will be due. Initial guidance provided for quarterly collection, which was subsequently revised to annually (due in January following the applicable year), and guidance issued in November 2013 made additional changes. As of the date of this article, the process and the timeline are as follows:
- By November 15, 2014: Contributing entities (i.e., plans and insurers) must send HHS headcount information, based on the first three quarters of the calendar year.
- By December 15, 2014: HHS will bill the entities.
- Within 30 days after receiving the bill (by approximately January 15, 2015): Contributing entities must pay $52.50 per participant to HHS.
- Sometime in December 2015: The balance of $10.50 per participant will be due.
The same timeframes apply 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. IRS FAQs issued November 18, 2013 (at http://www.irs.gov/uac/Newsroom/ACA-Section-1341-Transitional-Reinsurance-Program-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. The IRS FAQs also note that the Department of Labor has said the reinsurance contributions are a permissible plan expense under ERISA Title I because the payment is a required plan expense under the ACA.