On March 11, 2013, the U.S. Department of Health and Human Services published a final rule that will enable plan sponsors and insurers to calculate their liability under the transitional reinsurance fee provisions of the Patient Protection and Affordable Care Act (PPACA).
Beginning in 2014 (and continuing for 2015 and 2016), employers and other sponsors of self-funded health plans, as well as insurance companies offering insured health plan products, are subject to the PPACA's transitional reinsurance fee. This fee is designed to fund reinsurance payments to health insurance issuers that cover high-risk individuals in the individual market. The transitional reinsurance payments are intended to stabilize insurance premiums in the individual market during 2014, 2015 and 2016 as consumers and insurers become more comfortable with the state health insurance exchanges.
The transitional reinsurance fee applies to grandfathered and nongrandfathered health plans, as well as to retiree health coverage (unless it is secondary to Medicare or qualifies for another exception).
The final HHS regulations clarify several items regarding the calculation and payment of transitional reinsurance fees, including the following:
- The amount of the transitional reinsurance fee for 2014 will be $63 (or $5.25 per month) per covered life, confirming the amount that was set forth in the proposed rule (even as those regulations raised the possibility that it might be lowered slightly).
- Because the fee applies per covered life—and not per employee or subscriber—covered spouses and dependents, as well as covered employees, will generate fees.
- Although the fee aims to stabilize the health insurance market at a time when additional unknown risks are entering that market, the fee is payable by sponsors of self-funded health plans as well as health insurers. A plan sponsor may contract with a third-party administrator to calculate and pay the fee.
- The fee does not apply to Medicare Part C and Part D programs.
The fee applies only to plans providing major medical coverage, which is defined as health coverage for a broad range of services and treatments, including diagnostic and preventive services, as well as medical and surgical conditions in inpatient, outpatient, and emergency room settings. The following types of coverage are excluded from the transitional reinsurance fee:
- Prescription drug coverage.
- Health reimbursement arrangements (HRAs) integrated with other coverage, although the other coverage, such as a high deductible health plan, may constitute major medical coverage.
- Health flexible spending accounts (Health FSAs).
- Health savings accounts (HSAs).
- Employee assistance plans (EAPs).
- Coverage that is secondary to Medicare.
- Excepted benefits, such as stand-alone vision and dental plans.
- Long-term care coverage.
Plan sponsors have several alternatives for counting the number of covered lives for purposes of the fee, including:
- The actual count method, which focuses on the actual number of covered lives over the first three quarters of the year.
- The snapshot count method, which allows the plan sponsor to select representative dates in each of the first three quarters for counting covered lives.
- Methods based on Form 5500 participant counts, extrapolated to capture all covered lives.
Qualified beneficiaries receiving COBRA continuation coverage are counted for purposes of determining the transitional reinsurance fee. The fee is tax deductible as an ordinary and necessary business expense (unlike the Patient-Centered Outcomes Research Institute (PCORI) fee, which is an excise tax and is not tax deductible.
To the extent that a self-funded health plan is funded through a voluntary employees’ beneficiary association (VEBA) trust or otherwise, the transitional reinsurance fee may be paid from plan assets under the Employee Retirement Income Security Act (ERISA) rules. A plan sponsor that offers multiple plans may aggregate plans to avoid double counting covered lives.
Plan sponsors and insurers are required to report their enrollment counts by Nov. 15 of each year (2014, 2015 and 2016). HHS then will provide a notice of fee liability by Dec. 15, and the plan sponsor or insurer will have 30 days to remit the transitional reinsurance fee to HHS.
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