The Patient Protection and Affordable Care Act (“PPACA”) requires that a public health insurance exchange (“Exchange”) be available in every state by January 1, 2014. These Exchanges will offer health coverage to individuals starting in 2014—and no individual can be precluded from enrolling in coverage due to a preexisting condition. Given that individuals are required to have health coverage starting in 2014 or pay a tax (i.e., “the individual mandate”) it is anticipated that a large number of previously uninsured individuals will seek coverage from the Exchanges. To deal with the potentially high-cost enrollees who will enter the insurance market in 2014, PPACA created a temporary reinsurance program for the individual market that will be in operation from 2014 through 2016. Health insurers and group health plans are required to contribute to this temporary program. In essence, this program is insurance for the insurance companies. The program is meant to slow down the individual market rate increases that could occur due to the large number of high-cost enrollees coming into the Exchanges.
The Department of Health and Human Services (HHS) issued regulations that provide that each “contributing entity” must make reinsurance contributions on behalf of its group health plans and health insurance coverage. A contributing entity is:
- For an insured plan, a health insurance issuer
- For a self-funded group health plan, the third party administrator
These reinsurance contributions must be made for all “reinsurance contribution enrollees,” which are defined as any individual covered by the plan (i.e., each employee, spouse and dependent is counted).
The regulations state that certain excepted benefits (such as limited-scope dental plans, limited scope vision plans and certain health flexible spending accounts) are exempt from the rules. However, there is no exemption for retiree-only plans, health reimbursement arrangements (HRAs), employee assistance programs (EAPs) or wellness plans.
Under the statute, a total of $25 billion will be collected for the three-year period from 2014-2016. Of that amount, $20 billion will be used to fund reinsurance and $5 billion will be paid into the general funds of the U.S. Treasury. HHS has stated that it expects to collect $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016. Consultants and actuaries have estimated that for each covered life under a plan subject to these rules, a payment of between $60 to $110 will be due for 2014. (The actual amount of the fee has not yet been published and the fees are to decrease in 2015 and again in 2016.) However, assuming that the estimates are correct, if the employer maintains an insured plan that covers 300 employees plus 900 spouses and dependents, the 2014 reinsurance fee owed for that plan will be between $72,000 to $132,000. If that employer also maintains a separate prescription drug plan, an additional $72,000 to $132,000 in reinsurance fees will also be owed for that plan. (This assumes that HHS does not issue additional guidance to eliminate the possibility of double counting enrollees.)
The contributions will be collected on a quarterly basis over a three year period starting in January of 2014. HHS will collect the fees from the third party administrators for the self-funded plans. The States can collect the fees from the insurance companies. However, if they do not, HHS will collect those fees.
Given the high cost of these fees, there are a lot of open issues that need to be resolved, such as:
- If an employer maintains an insured plan plus an HRA, will the reinsurance fee apply separately to those plans?
- Will fees actually be assessed against EAPs and wellness plans?
- Will there be any exception for retiree-only plans, such as ones that are secondary to Medicare?
- What is the exact amount of the fee?
We are hopeful that additional guidance will issued soon.
