The Affordable Care Act (ACA) established three risk-spreading programs to provide payments to health insurance issuers that cover higher-risk populations and to more evenly spread the financial risk carried by issuers. These programs, which will be effective in 2014, are a transitional reinsurance program, a temporary risk corridor program and a permanent risk adjustment program.
The transitional reinsurance program is intended to help stabilize premiums for coverage in the individual market during the first three years of Exchange operation (2014 through 2016) when individuals with higher-cost medical needs gain insurance coverage. This program will impose a fee on health insurance issuers and self-insured group health plans.
On March 23, 2012, the Department of Health and Human Services (HHS) issued final regulations implementing ACA standards for reinsurance, risk corridors and risk adjustment programs.
On Dec. 7, 2012, HHS released proposed regulations to expand upon these standards. The proposed regulations describe how much issuers and sponsors of self-insured plans would be required to pay under the reinsurance program and provide other important program details. The regulations are only in the proposed stage, and will not be effective until after they are issued in final form.
This The Insurance Center Legislative Brief describes key aspects of ACA’s transitional reinsurance program, including the fee information from the proposed regulations.
WHO MUST PAY THE FEES?
ACA requires health insurance issuers and third-party administrators (TPAs) of self-insured group health plans to pay fees to support the reinsurance program. As described below, certain types of coverage are excluded from the reinsurance program.
For insured health plans, the issuer of the health insurance policy is required to pay fees to the reinsurance program. Although sponsors of fully insured plans are not responsible for paying the reinsurance fees, issuers will likely shift the cost of the fees to sponsors through premium increases. Issuers will not be required to pay the reinsurance fees until the end of each year, but they may want to collect the fees during the year. For example, issuers may include the fees in their 2014 insurance rates.
The proposed regulations would clarify that, for self-insured group health plans, the plan sponsor is liable for paying the reinsurance fees, although a TPA or administrative-services-only (ASO) contractor may be used to make the fee payment at the plan’s direction. For a plan maintained by a single employer, the employer would be the plan sponsor. A self-insured, self-administered group health plan without a TPA or ASO contractor would pay its reinsurance fees directly to HHS.
WHAT TYPES OF COVERAGE ARE EXCLUDED?
Contributions to the reinsurance program are only required for plans that provide major medical coverage. Major medical coverage is coverage for a broad range of services and treatments, including diagnostic and preventive services, as well as medical and surgical conditions in various settings, such as inpatient, outpatient and emergency room settings. According to the proposed regulations, health FSA coverage is not major medical coverage due to ACA’s $2,500 annual limit on salary deferrals to a health FSA.
Coverage that consists solely of excepted benefits under HIPAA is not subject to the reinsurance program. This includes, for example, stand-alone dental and vision plans, accident-only coverage, disability income coverage, liability insurance, workers’ compensation coverage, credit-only insurance or coverage for on-site medical clinics. Thus, issuers and plan sponsors will not be required to pay fees for these types of plans.
In addition, the following plans and coverage would be excluded from reinsurance fees under the proposed regulations:
- Health reimbursement arrangements (HRAs) that are integrated with major medical coverage (although reinsurance fees would be required for the group health plan providing major medical coverage);
- Health savings accounts (HSAs) (although reinsurance fees would be required for an employer-sponsored high-deductible health plan);
- Health flexible spending accounts (FSAs);
- Employee assistance plans, wellness programs and disease management plans that provide ancillary benefits and not major medical coverage; and
- Stop-loss and indemnity reinsurance policies.
Also, the proposed regulations would provide that fees are only required for individuals with Medicare coverage when the employer-provided group health coverage is the primary payer and Medicare is the secondary payer. If the group health plan is the secondary payer, individuals with Medicare coverage would not be counted for the reinsurance fees.
HOW MUCH ARE THE FEES?
The reinsurance program’s fees will be based on a national contribution rate, which HHS will announce annually. For 2014, HHS proposes a national contribution rate of $5.25 per month ($63 per year).
The proposed regulations provide that an issuer’s or plan sponsor’s reinsurance fee would be calculated by multiplying the average number of covered lives (employees and their dependents) during the benefit year for all of the entity’s plans and coverage that must pay contributions, by the national contribution rate for the benefit year. Thus, the annual contribution for a group health plan with 150 covered lives would be $9,450 per year (150 x $63 = $9,450).
The proposed regulations include a variety of methods for issuers and plan sponsors to determine the average number of covered lives under a health plan. These methods include a snapshot method, an actual count method and a method based on using data from insurance forms or the Form 5500.
Also, states may elect to collect additional contributions on top of the federal contribution rate to cover administrative expenses or additional reinsurance payments. The proposed regulations note that neither ACA nor the regulations give a state the authority to collect additional contributions from self-insured plans covered by ERISA.
HOW WILL THE FEES BE DETERMINED AND COLLECTED?
Under the proposed regulations, HHS would collect the reinsurance fees from issuers and plan sponsors in all states, including states that elect to operate their own reinsurance programs.
These collections by HHS would be made based on a national, uniform calendar. If a state imposes an additional contribution on top of the federal contribution rate, issuers would be required to make those payments in a manner specified by the state.
The proposed regulations would require issuers and plan sponsors to submit an annual enrollment count to HHS no later than Nov. 15 of 2014, 2015 and 2016. Within 15 days of this submission or by Dec. 15, whichever is later, HHS would notify each issuer or plan sponsor of the amount of its required reinsurance contribution. The issuer or plan sponsor would be required to remit this amount to HHS within 30 days after the date of HHS’ notification.
The Insurance Center will continue to provide updated information on health care reform developments as it becomes available.