Employers might pay less than $63 per covered life per year under health reform’s transitional reinsurance fee rules, but that would require a surplus in the fund, a U.S. Department of Labor official told an employer plan industry group on April 18 in Washington, D.C.
Even though possible, such a reduction would be contingent on: (1) collections exceeding claims; and/or (2) the government collecting more than $10 billion in the first year. The official with DOL’s at the Employee Benefits Security Administration, who asked to remain anonymous, made the statements after her prepared remarks during a question-and-answer session at a legislative/regulatory conference sponsored by the Self-Insurance Institute of America.
The official also described what the situation would be if the reverse happened. That is, if employers fail to contribute enough money to cover reinsurance claims, then the rate of $63 per covered life will remain, but outgoing claims will be paid on a diminishing pro rata basis.
Fee Reduced Only if Collections Surpass Claims
The fee is designed to prevent issuers of individual policies from having to build in the risk of sick individuals into premiums, since underwriting of individuals was drastically curtailed by reform’s guaranteed issue rules. The government aims to collect $12 billion in 2014 ($10 billion for the fund and $2 billion for the U.S. Treasury), $8 billion in 2015 ($6 billion for the fund and $2 billion for the U.S. Treasury) and $5 billion in 2016 ($4 billion for the fund and $1 billion for the U.S. Treasury).
U.S. Department of Health and Human Services rules on the notice of payment and parameters (78 Fed. Reg. 15410) require self-funded health plans to pay into the transitional reinsurance fund. The rules added language specifying that administrative-only services and third-party administrators may arrange payment of the fee on behalf of self-funded plans, but the employer or plan sponsor is ultimately responsible for the cost.
Employers and insurers would welcome the news that the government might lighten this new tax burden; however, the official did not make a direct promise about a future lessening of the per capita amount. She said there were two scenarios in which the fee would be reduced.
- If the government collects more than $10 billion in the first year, it will carry forward the excess to 2015, and in that case, the 2015 contribution rate will go down. However, the official said the likelihood that the government would collect more than $10 billion in 2014 was slim.
- If reinsurance claims do not exhaust the fund, the government will roll over anything left over to 2015, and the contribution rate would be reduced. But under health reform’s other transitional reinsurance program, the early retiree reinsurance program, ran out of money after spending $5 billion far quicker than anticipated, leaving thousands of claims unpaid, according to Rep. Tom Price (R), who spoke earlier in the day.
The official also described what would happen if not enough money was collected into the fund.
- If the government collects less than $10 billion, it will not come back the next year to fill that in 2015. In other words $63 per year is the most per covered life the government will collect.
- But if claims surpass incoming contributions, claims payments will be reduced on a pro rata basis, based on rate of collection and projection of claims. The net result would be, of course, insurers getting less money for their claims.
The official noted that payouts made from the fund would be triggered at relatively low attachment points: “below industry standard,” as she put it. Attachment points are $60,000 per individual, and a cap will be applied at $250,000; the fund will pay 80 percent of claims (but that percentage could drop if the fund becomes depleted, as described above). This also supports the idea that payouts will be relatively liberal under the rules, meaning the fund might be exhausted and collection rates will have to remain high.
She said no change in contribution amount or in reimbursement amount could be considered until after June 30, 2014.
For more information, see the Guide to Self-Insuring Health Benefits, and The New Health Reform Law: What Employers Need to Know.