Change in Reinsurance Fee Rules

The Patient Protection and Affordable Care Act (PPACA) imposes several new fees on health plans, including the Patient-Centered Outcomes Research Trust Fund Fee (PCORI) and the Traditional Reinsurance Fee.  The reinsurance fee has a significantly larger financial impact than the PCORI fee, and for that and other reasons has generated considerable controversy.  On November 25th, the Department of Health and Human Services (HHS) issued proposed regulations describing when the fee is paid and who must pay it.

What is the reinsurance fee?

Section 1341 of PPACA creates a transitional reinsurance program designed to help stabilize rates in the individual market.  The reinsurance fee funds this program.  The fee is paid on a per capita basis to help insurers who cover high risk individuals and those with pre-existing conditions enrolled in plans through the Exchanges.

How much is it?

The fee begins in 2014 and continues through 2016.  In 2014, the fee is $63 per capita, and shrinks thereafter to $42 in 2015 and $26 in 2016.  The fee is expected to generate $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016.

Who is responsible for the fee?

The reinsurance fee is paid by insurer or third-party administrators, not employers.

Changes in the proposed regulations

          1. Timing of Collection of Fees

If a plan’s enrollment count is submitted before November 15th, 2014 to HHS,  HHS will send a notification of payment to the plan no later than December 15th.  The plan must then remit a payment of $52.10  per covered life no later than 30 days from the date of HHS’s notification, likely in January, 2015.  The remaining $10.50 per covered life will be paid in a second installment late in the fourth quarter of 2015.

For 2015 plan year, the 1st installment payment will be $33 per covered life payable at the end of 2015 or early 2016, and the second installment of $11 per covered life is payable in the fourth quarter of 2016.

         2. Exemption from the Fees

As originally proposed, the reinsurance fee applies equally to all fully-insured and self-insured plans.  This was recently modified to  “exclude from the obligation to make reinsurance contributions any self-insured group health plan that does not use a third party administrator for claims processing or adjudication, or plan enrollment for [plan years] 2015 and 2016.”  That is, a self-insured plan that is fully self-administered is exempt from paying the reinsurance contributions related to plan years 2015 and 2016.

What is the takeaway?

Under the proposed regulations, all self-insured and fully-insured plans will be subject to the reinsurance fee in 2014 when it will be the highest.   However, if a plan submits its enrollment count in a timely fashion, it can budget to pay an installment of the fee in early January, 2015, with a remaining installment in the last quarter of 2015.

In 2015 and 2016, plans must satisfy two parameters to be exempt from the fee: 1) be self-insured AND 2) be self-administered.  The regulations provide clarifying guidance on when a plan is “self-administered.” Legal arguments have been raised challenging the new exemption, so it is possible the exemption will be revised or rescinded.  If the exemption does not apply, the reinsurance fee will be paid in the same manner as the fee is paid for the 2014 plan year.

As always, should you have any questions, please contact our Benefits team.