Transitional Reinsurance Fee 2014
First, the Patient-Centered Outcomes Research Fee; next, the Transitional Reinsurance Fee (“Fee”); if that is what you were thinking, know you are not alone. Introduced as part of the Affordable Care Act (“ACA”), the Fee was created and designed to fund reinsurance payments to health insurance issuers that cover high-risk individuals in the individual market and is intended to stabilize insurance premiums in the market for the 2014 through 2016 years. The Fee has also been instituted to pay administrative costs related to the Early Retiree Reinsurance Program (“ERRP”).
BACKGROUND ON TRANSITIONAL REINSURANCE PROGRAM
The ACA established a transitional reinsurance program to provide payments to health insurance issuers that cover high-risk individuals and to more evenly spread the financial risk of issuers. The program, as outlined by the final regulations, is designed to provide issuers with greater payment stability as insurance market reforms are implemented and the state-based health insurance exchanges/marketplaces facilitate increased enrollment. It is expected that the program will reduce the uncertainty of insurance risk in the individual market by partially offsetting issuers’ risk associated with high-cost enrollees. In an effort to fund the program, the ACA created the Fee which is a temporary fee that will be assessed on health insurance issuers and plan sponsors of self-funded health plans. The Fee is applicable for the 2014, 2015 and 2016 years and is deductible as an ordinary and necessary business expense.
APPLICABILITY
The Fee is applicable to all health insurance plans providing major medical coverage. Major medical coverage is defined as health coverage for a broad range of services and treatments, including diagnostic and preventive services, as well as medical and surgical conditions in inpatient, outpatient and emergency room settings. Since COBRA continuation coverage generally qualifies as major medical coverage, the Fee will also apply in this instance. It does not, however, apply to employer provided major medical coverage that is secondary to Medicare.
The Fee, as currently structured, does not apply to various other types of plans including, but not limited to, health savings accounts, employee assistance plans or wellness programs that do not provide major medical coverage, health reimbursement arrangements integrated with a group health plan, health flexible spending accounts and coverage that consists of only excepted benefits (e.g. stand-alone dental and vision).
AMOUNT OF THE FEE
The Transitional Reinsurance Fee for 2014 is equal to $5.25 per month per covered life for a total of $63 per year per covered life. It is expected that the fee will generate approximately $12 billion in revenue during 2014. For 2015 the Fee per covered life will decrease to $44 and is expected to raise about $8 billion in revenue. The Fee for the 2016 year has yet to be determined but it is anticipated that the Fee during this year will raise approximately $5 billion in revenue. Thereafter, the Fee is set to expire and no longer be applicable.
CALCULATION AND PAYMENT
Similar to the Patient-Centered Outcomes Research Fee, this Fee will be calculated with respect to the number of covered lives; including employees or subscribers, and their covered spouses and dependents. However, a plan is not required to use the same method for counting covered lives that was used in calculating the Patient-Centered Outcomes Research Fee. In addition, once a method is selected it must be used for the entirety of the year; however, a different method can be selected on a year-to-year basis.
There are four methods available to plan sponsors of self-insured group health plans to count the number of covered lives:
- Actual Count – Under this method one must count the total number of covered lives for each day of the first nine months of the plan year and divide that number by the total number of days.
- Snapshot Count Method – Count the total number of covered lives on a specific day, or more than one day, in each of the first three quarters of the plan year (can generally be within a three-day range) and divide this number by the total number of days in which a count was made.
- Snapshot Factor Method – Includes the total number of those with self-only coverage plus the total number of those with other than self-only coverage multiplied by a factor of 2.35. This method requires at least one count per quarter for the first three quarters of the plan year.
- Form 5500 Method – For plans with self-only coverage the number of covered lives includes totaling the number of participants reported on the Form 5500 filed by the plan at the beginning and end of year; and dividing that total by two. For plans with other than self-only coverage the total number of covered lives includes the sum of the plan participants at the beginning and end of year as reported on the Form 5500.
The above methods, although similar to the methods used in calculating the average number of covered lives for the Patient-Centered Outcomes Research Fee, have built on these Patient-Centered Outcomes Research Fee methods and have been modified for applicability to this Fee. For example, the counts for the Fee are made during the first nine months of the benefit year since the average number of covered lives for the Fee is required to be reported to the Department of Health and Human Services (“Department”) during the fourth quarter of the benefit year.
For the initial fee for the 2014 year, the number of covered lives must be reported to the Department no later than November 15, 2014. The Department will then notify reporting organizations no later than December 15, 2014 the amount of the fee that will be due and payable. The first portion of the Fee, or $52.50 per covered life, is due and payable no later than 30 days after issuance of the notice from the Department. This portion of the Fee will cover reinsurance payments and administrative expenses. The second portion of the Fee, $10.50 per covered life, will cover Treasury’s administrative costs associated with the ERRP and will be due in late 2015.
REPORTING THE NUMBER OF COVERED LIVES
Guidance has been issued explaining how to report the number of covered lives to the Department. There is a form available on www.pay.gov wherein basic company and contact information will be required to be submitted along with the number of covered lives. Representatives at www.pay.gov have indicated that the form to report the number of covered lives for the Fee will be available in the fall of 2014.
CONCLUSION
As the initial number of covered lives is due to be reported no later than November 15th of this year employers should review their types of health coverage and determine which plans are subject to the Fee. Employers that have fully insured plans should be on the lookout for potential increased premiums as the insurance carrier is responsible to report and pay the Fee on behalf of the plan in these instances. It is recommended that employers consult their tax advisers for additional information related to the Fee.
Please contact a member of Withum’s Healthcare Reform Advisory Services Group for further questions.
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