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Employers are understandably nervous about the transitional reinsurance fee, which health insurers and employer health plans must pay from 2014 through 2016. The fee will be collected by HHS, even though the states will tailor their own risk adjustment programs. It must be paid annually. Plans will probably make their first payment for 2014 a few weeks into January 2015. For more on employer mandates under health reform go to the New Health Reform Law: What Employers Need to Know. This book is being edited to include the latest developments in health reform.
Q: How much will health insurers and self-insured health plans have to pay?
A: This transitional reinsurance fee for 2014 will be $5.25 per month per covered person (or $63 a year for single coverage, $126 for an employee and spouse, $189 for an employee, spouse and one dependent, etc.). Rates for 2015 and 2016 will probably be adjusted based on 2014 experience. The amount does not vary state-by-state: it is a national contribution rate. Note: The government says it will make $10 billion in reinsurance payments in 2014, $6 billion in 2015, and $4 billion in 2016 out of the money it raises from insurers and plans.
Q: Who will pay the fee?
A: HHS clarified that a “contributing entity” for purposes of reinsurance contributions is a group health insurer or self-insured group health plan. If the employer plan is insured, then the insurer will remit the payment. If the employer health plan is self-insured, it may use a third-party administrator or contractor to transfer the reinsurance contributions, but the self-insured plan is ultimately responsible for the contributions.
Q: Can self-funded health plans pay less, because they are not insurance companies, and are excluded from receiving reinsurance payments and do not benefit from their contribution?
A: No. Self-funded plans get no credit for never being able to draw from the reinsurance pool. The national per capita contribution rate for the 2014 benefit year applies to all contributing entities, and self-insured group health plans were defined as contributing entities in the health reform statute.
Q: Are former employees with COBRA continuation coverage or similar state coverage covered lives for reinsurance purposes?
A: Yes. In March 11 final rules, HHS says COBRA and similar state continuation coverage is a form of employment-based group health coverage paid for by the former employee. If the COBRA coverage is major medical, then it is subject to the transitional reinsurance payments. Only by not being major medical coverage can COBRA coverage escape being subject to the payments. There are no other exceptions.
Q: Does HHS exclude certain types of health coverage and plans from reinsurance contributions?
A: Yes. HHS exempts health coverage that is not major medical from contributions. The regulation defines major medical coverage as being “for a broad range of services and treatments including diagnostic and preventive services, as well as medical and surgical conditions provided in various settings, including inpatient, outpatient and emergency room settings.” Certain health coverage is exempt from the fee, including most HRAs, HSAs, health FSAs and EAPs.
Q: Does a standalone prescription drug plan trigger the fee?
A: No. HHS clarified that a self-insured group health plan or group health insurance coverage that is limited to prescription drug benefits is excluded from reinsurance contributions. Since they only provide coverage for prescription drug benefits, these plans are not major medical coverage.
Q: Does Medicare supplemental coverage trigger the fee?
A: Enrollees are not counted if they are in a plan that is secondary to Medicare. The group health coverage will be considered major medical coverage only if the employer is the primary payer of medical expenses (and Medicare is the individual’s secondary payer). But in situations involving end-stage renal disease, employer health plans will be subject to the reinsurance fee during the 30-month period during which the plan is primary to Medicare.
Q: We‘ve got a generous health reimbursement arrangement to which we contribute, and it supplements the health coverage we offer. Do we have to pay the reinsurance fee for enrollees in the HRA?
A: It depends. You won’t have to if the HRA is “integrated” with a major-medical group health plan. But if an enrollee is signed up under the HRA only and he or she is not enrolled in the coordinating health plan at all, he or she must be counted for the fee, because the HRA then is considered to be a standalone health plan. In the instance where an enrollee is under the HRA, but also in a coordinating health plan that is not a qualified health plan (because it fails actuarial value, employer-contribution tests, or because it offers inadequate or unaffordable coverage), your company should still be able to pay the transitional fee only once for that person.
Q: How will group health insurers and self-insured group health plans calculate the contributions they make to this fund?
A: Insurers and self-insured plans may use aggregation to determine the average number of covered lives for purposes of the reinsurance contribution. If a plan sponsor maintains two or more group health plans or health plans that collectively provide major medical coverage for the same covered lives, those multiple plans must be treated as a single self-insured group health plan for purposes of calculating any reinsurance contribution amount, the final rule stated. There are three main methods of calculating the payment, based on covered lives:
1) The actual number of lives covered during the first three quarters of the year. This is derived by calculating the sum of the lives covered for each day of the plan year and dividing that sum by the number of days in the plan year.
2) ”Snapshot method,” by which the plan sponsor or insurer selects representative dates in each of the first three quarters of the year. The dates have to be the same day of the month, and the dates have to be three months apart).
3) The Form 5500 method. Counts are based on the number of participants reported on Form 5500 for that plan year. For plans offering just self-only coverage, the average number of covered lives is calculated by adding the number of participants on the first and last days of the plan year and dividing by 2. For plans offering self-only and other (such as dependents and spouses) coverage, the average number of lives is calculated by adding the number of participants on the first and last day of the plan year (and not dividing or reducing that total).