Beginning in January of 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 Affordable Care Act’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 (on and off the Exchange) for at least three years, beginning in 2014. The transitional reinsurance payments are intended to stabilize insurance premiums in the individual market during 2014, 2015, and 2016 as consumers and insurers become for comfortable with the state-based health insurance exchanges. The transitional reinsurance fee applies to grandfathered and non-grandfathered health plans, as well as to retiree health coverage (unless it is secondary to Medicare or qualifies for another exception).
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.
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.