As part of the Patient Protection and Affordable Care Act (ACA), the U.S. Department of Health and Human Services (HHS) released final regulations on March 1, 2013, addressing the transitional reinsurance program fee effective in CY 2014.  The final regulations become effective May 10, 2013, and address the estimated amount of annual contributions that will be paid to HHS from employer-sponsored group health plans, the types of welfare plans that are subject to the fee, the applicability of the fee to COBRA coverage and the treatment of certain retiree benefits, among others.  Proposed regulations were released in November 2012 and were addressed in aprevious newsletter.

Estimated Contributions by Group Health Plans Based on Covered Individuals

Under Section 1341 of the ACA, each state may establish a temporary reinsurance program to help stabilize premiums for coverage in the individual market during the first three years that the state health insurance exchanges are operational (2014 through 2016).  If a state chooses not to establish a transitional reinsurance program (currently all states except for Maryland and Connecticut), HHS will establish a reinsurance program for the state.  HHS will collect contributions from both health insurance issuers (on behalf of insured group health plans) and self-insured group health plans (self-insured plans may elect to use a third-party administrator to transfer contributions).  Any excess contributions HHS receives will be used to make payments to state reinsurance programs for the subsequent two years (2017 and 2018).

HHS will publish in the annual HHS Notice of Benefit and Payment Parameters the national per capita reinsurance contribution rate for the upcoming benefit year.  The current proposed annual contribution rate will be $63 per covered life, or $5.25 per covered life, per month in 2014.  A covered life is defined to include all individuals covered under a plan and is not limited to the number of employees participating in a group health plan.  For example, an employee with a spouse and two children, all of whom are covered by the group health plan, would be four covered lives.  Thus, the annual contribution of an employer with 5,000 covered lives would be $315,000 per year.  These payments are permissible expenses of the plan for purposes of Title I of the Employee Retirement Income Security Act and are tax deductible to employers as an ordinary and necessary business expense.

Determining Which Plans Are Required to Pay Fees

Reinsurance contributions are only required for “major medical coverage” and not for “excepted benefits.”  Health savings accounts (HSA), health reimbursement arrangements (HRA), flexible spending arrangements (FSA), prescription drug coverage, dental and vision plans offered on a stand-alone basis, and other programs providing ancillary benefits are not generally considered to be major medical coverage, and thus employers sponsoring these arrangements will not be required to pay reinsurance contributions.  Arrangements constituting major medical coverage, however, do include employer-provided retiree coverage, COBRA continuation coverage and high-deductible group health plans providing major medical coverage that are associated with an HSA or HRA, so long as no exception applies.

Determining Who Is a Covered Individual

Contributing entities—i.e., health insurers and self-insured plans—will be permitted to use several different methods to determine the average number of covered lives for purposes of the annual enrollment count.  These methods are based on those previously allowed under the guidance issued to implement the assessments for the Patient-Centered Outcomes Research Trust final rule.

As to group health plans that coordinate with Medicare, when the employer-provided coverage is primary, the employer plan would be required to make the transitional reinsurance program contributions.  This scenario would occur when an individual is still actively employed by an employer, and covered under the employer’s plan and Medicare (i.e., working-aged).  When Medicare is the primary payer and the employer’s plan is secondary, however, the employer’s plan would not be responsible for making the reinsurance contributions.  This scenario would occur when an individual is no longer actively employed by an employer, and covered under the employer’s plan and Medicare.