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Transitional Reinsurance Program Modified

On March 11, 2014, the Department of Health and Human Services (HHS) issued the 2015 benefit and payment parameters regulation for the Marketplace (i.e., Affordable Insurance Exchanges), which provides guidance on the plan designs for the 2015 Marketplace and updates guidance on the three year Transitional Reinsurance fees. This Alert focuses on the Transitional Reinsurance fees owed by plan sponsors. Highlights include:

  • The 2015 fee is set at $44 per covered life (compared to $63 in 2014).
  • Plans that are both self-insured and self-administered do not have to pay the 2015 & 2016 fees.
  • Plans that do not offer "Major Medical Coverage" do not have to pay this fee.
  • Plans only pay this fee on covered lives for whom they provide primary coverage.
  • A portion of each year's reinsurance fees is delayed to later in the year.

Action Needed: Plan sponsors can determine the financial impact from the Transitional Reinsurance fees for the 2014, 2015, and 2016 benefit years. Administrators can review their methodology for counting covered lives to determine the fees. Plans that are both self-administered and self-insured can evaluate if they are exempted from the 2015 and 2016 fees.

Background and Overview

The Transitional Reinsurance program was created by Section 1341 of the Affordable Care Act (ACA) to stabilize premiums for coverage in the Marketplace from 2014 through 2016. The reinsurance program itself is designed to alleviate the need to build into premiums the risk of enrolling individuals with significant unmet medical needs. The Transitional Reinsurance Program is funded by contributions from insurers and group health plans (referred to in the regulations as "contributing entities") that provide Major Medical Coverage, based on covered lives. The definition of contributing entities includes self-insured plans. Under the transitional reinsurance program, HHS is to collect funds for reinsurance, the United States Treasury, and estimated expenses for 2014-2016 as follows (amounts in billions):

Benefit Year

Reinsurance ($billion)

U.S. Treasury ($billion)

Estimated Expenses ($billion)

Total to Exchanges ($billion)

Original Tax per covered life

Updated Tax per covered life
(see details below)

2014

$10

$ 2

$ 0.02

$12.02

$63.00

$52.50 + $10.50

2015

$  6

$ 2

$ 0.02

$  8.02

est. $42

$33.00 + $11.00

2016

$  4

$ 1

$ 0.02

$  5.02

est. $26

est. $26

The updated fees above reflect the final regulations issued in March 2014. Details relating to the definition of covered lives, the amount, and the timing of the fees are provided below.

2015 Regulatory Changes

The 2015 benefit and payment parameters regulation makes changes or clarifies the existing regulations in the following ways: i) sets the 2015 fee at $44, ii) changes the definition of contributing entities (i.e., the plans that have to pay the tax), iii) clarifies the definition of Major Medical Coverage, iv) clarifies use of the Form 5500 enrollee counting method, and v) changes some of the payment due dates. The last three of these five changes are first effective for the 2014 benefit year, but the modification in the definition of contributing entities is effective beginning with the 2015 benefit year.

Definition of Contributing Entity (i.e., Fee Payers)

The definition of contributing entity has been changed for the 2015 and 2016 benefit years, but not for the 2014 benefit year. For 2015 and 2016, contributing entities will no longer include group health plans that both self-insure and self-administer. Accordingly, under the 2015 regulatory change, a self-insured, self-administered group health plan will only need to pay the 2014 $63 fee per covered life fee for the entire Transitional Reinsurance program.

A plan will be considered as self-administered if it does not use a third party administrator (TPA) in connection with claims processing, adjudication (including the management of internal appeals), or plan enrollment for services other than pharmacy benefits or excepted benefits. A self-administered group plan is permitted to use an unrelated third party to obtain provider network(s) and related claims pricing services and still be considered self-administered. Excepted benefits are defined as benefits provided as covered benefits such as behavioral health that constitute up to 5 percent of claims processed. The determination of the 5 percent is based on either the number of transactions processed by the third party for claims processing/adjudication (e.g., behavioral health) or enrollment services (e.g., COBRA enrollment) provided by the third party. The final regulations note that few plans will meet the standards of qualifying for this exemption.

Major Medical Coverage (i.e., Plans Owning the Fee)

Contributing entities must provide Major Medical Coverage. Major Medical Coverage is defined as: a catastrophic plan, an individual or small group market plan subject to the actuarial value requirements under 156.140 of the regulations, or a health plan that covers for a broad range of services and treatments provided in various settings that provides minimum value as defined in 156.145 of the regulations. This definition of Major Medical Coverage only applies for purposes related to the reinsurance contributions.

Covered Lives Counting Method

There are three methods to count covered lives. These are the same as are used for the Patient-Centered Outcomes Research Institute (PCORI) fees, with the exception that for the Transitional Reinsurance fees, the plan only needs to pay on covered lives for which the plan provides the primary coverage. Prior to the issuance of this regulation, the plans could only exclude covered lives that had Medicare as their primary insurer. Note that no fee is required on eligible persons who opt out of coverage.

In addition, the regulation allows the Form 5500 for the last applicable time period to be used to determine the number of enrollees under the Form 5500 counting methodology. For a plan offering only self-only coverage, the number is determined by adding the number of participants at the beginning and end of the plan year and dividing by 2. For a plan offering self-only coverage and any coverage other than self-only coverage (e.g., family coverage), the number of enrollees is determined by adding the total participants covered at the beginning and end of the plan year and dividing by 2.

The final regulations also provide for HHS to audit targeted plans to confirm the accuracy of their covered life counts and resulting reinsurance payments.

Timing of Payment of Reinsurance Contributions

Instead of the payment of the entire Transitional Reinsurance fee being due in January of the next calendar year, these regulations provide for two payments for all three benefit years. Notice of the number of covered lives must still be given to HHS by November 15 of each of 2014, 2015, and 2016. Accordingly, the payments of $63 per covered life for 2014 and $44 per covered life for 2015 will be paid as follows:

Benefit Year

First payment timing and amount (per enrollee)

Second payment timing and amount (per enrollee)

Total

2014

January 2015 - $52.50

4th quarter 2015 - $10.50

$63.00

2015

January 2016 - $33.00

4th quarter 2016 - $11.00

$44.00

The 2016 fee amounts are not yet determined but are anticipated to have the same timing structure.

Cheiron consultants can assist you in analyzing the impact of the changes to the transitional reinsurance program.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Therefore, we do not provide legal services or tax advice.

 
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