As part of the Patient Protection and Affordable Care Act (ACA), the Health and Human Services (HHS) recently released proposed regulations regarding the estimated amount of annual contributions that are required to be paid to them from employer-sponsored group health plans to finance state transitional reinsurance programs. The reinsurance programs are intended to help stabilize premiums for coverage in the individual market during the first three years the state health insurance exchanges are operational (2014 through 2016). HHS is estimating the annual contribution rate for 2014 will be $63 per covered life (employees and their dependents).
The following provisions are important to review:
- Proposed Annual Contribution: The amount of the contribution would be based on the statutory requirement to collect $12 billion for 2014 ($10 billion for the reinsurance program and $2 billion for the U.S. Treasury). The combined amount will decrease to $8 billion for 2015 and $5 billion for 2016. HHS proposes a nationally uniform contribution rate of $63 per covered life per year ($5.25 per month), payable annually (rather than quarterly, as previously indicated). HHS is seeking comments on whether statutory requirements would permit a delay until 2016 in the collection of the $2 billion for the U.S. Treasury, thereby lowering the contribution rate in 2014.
- Determining the Covered Individual: The proposed regulations include several methods for counting covered lives (taking dependent coverage into account), building on the methods used for the PCOR fee although contributors would not need to use the same counting method for both calculations.
- Contributing Entities: For this purpose, the contribution requirement would apply only to “major medical” coverage, which the preamble defines as coverage for a broad range of services and treatments, including diagnostic, preventive, medical, and surgical services provided in inpatient, outpatient, and emergency room settings. Contributions would not be required from HRAs that are integrated with a group health plan or from HSAs (the major medical plan associated with the HRA or HSA would pay contributions). Contributions also would not be required for health FSAs, EAPs, or wellness programs that do not provide major medical coverage, or for coverage that consists solely of excepted benefits. According to the preamble, group health plans would not count individuals for whom Medicare is the primary payer when determining the contribution amount. In separate FAQ guidance, the IRS has indicated that insurers and plan sponsors generally can deduct reinsurance contributions as ordinary and necessary business expenses. According to HHS, the DOL has advised that these contributions would be a valid plan expense under ERISA.
- Collection of Contributions: For fully insured major medical coverage, insurers are liable for the contributions. The preamble provides that the plan is ultimately liable for the contributions, although a TPA can be used to remit the contributions on the plan’s behalf. HHS will collect all national contributions for both fully insured and self-insured plans, even where a state operates its own reinsurance program. Starting in 2014, the contributing entity will report covered lives to HHS by November 15. HHS will notify the contributing entity of its contribution amount by December 15, and the contributions will be due within 30 days after the contributing entity receives the contribution notice. Under limited circumstances, states can collect additional reinsurance contributions to provide enhanced reinsurance or to pay administrative expenses. However, the preamble provides that nothing in the proposed regulations gives states the authority to collect these surcharges from self-insured ERISA plans and notes that federal law generally preempts state laws that relate to ERISA plans.
- Reinsurance Payments: The contributions would be used primarily to cover a percentage of claims in excess of a specified attachment point (subject to a dollar ceiling) under individual policies subject to health insurance market reforms. Contributions would be treated as a national pool and used to provide reinsurance on a per-policy basis without regard to where the contribution was collected.