January 25, 2013 – Transitional Reinsurance Fees
Each state that operates an Exchange is required to establish a temporary reinsurance program (that will exist from 2014 to 2016) to which health insurers and group health plans are required to contribute through the payment of “transitional reinsurance fees.” HHS published proposed regulations regarding these fees on December 7, 2012, available here. In general, the fees are applicable regardless of whether the group health plan is sponsored by a for-profit, governmental, non-profit, or church employer.
Note: This requirement applies to both ERISA and non-ERISA plans.
When is the fee due?
The fee is payable with respect to the calendar years 2014 through 2016. It generally will be due near the end of each of those years, around December 15th.
Who is responsible for paying the fee?
The proposed regulations indicate that each “contributing entity” is responsible for paying the fee. For a fully-insured plan, the contributing entity is the insurance carrier. For a self-insured plan, the contributing entity is the plan. A self-insured plan may contract with a third party administrator to pay the fee on the plan’s behalf.
Note: Because the fee is imposed on the plan, the fee may be paid from plan assets without violating the ERISA plan asset rules.
What is the amount of the fee?
The exact amount of the annual fee has not yet been determined. Currently, HHS has estimated that the fee will be $63 per covered life for 2014.
Note: The fee is generally based upon the number of “covered lives,” not the number of covered employees.
What types of coverage are subject to the fee?
The statute indicates that the fee is payable by major medical plans. The preamble to the proposed regulations states that “major medical coverage” includes health coverage for a broad range of services and treatments, including diagnostic and preventive services and medical and surgical conditions.
The proposed regulations specifically exempt the following plans and coverages:
- Plans consisting solely of HIPAA excepted benefits (e.g., stand-alone dental or vision plans)
- Health reimbursement arrangements (HRAs) that are integrated with a major medical plan
- Health flexible spending arrangements within the meaning of Section 125
- Health savings accounts
- EAPs, disease management programs, and wellness programs that do not include major medical coverage
Note: Retiree-only major medical plans are subject to the fee. However, the proposed regulations provide that if a covered individual is also enrolled in Medicare and Medicare is the primary payer, then the fee is not payable with respect to that covered individual. The fee would still be payable with respect to any other individuals covered under the retiree-only plan (i.e., those not enrolled in Medicare).
Stand-alone HRAs are not specifically addressed by the regulations. Although no specific exemption has been provided, there may be an argument that a stand-alone HRA is not subject to the fee. Sponsors of stand-alone HRAs should discuss this issue with their legal counsel.
How are reinsurance contributions calculated for self-insured plans?
In general, the amount of the fee payable by the plan is determined by multiplying the average number of covered lives during the applicable benefit year by the contribution rate for that year. The proposed regulations provide self-insured plans several alternative methods for counting covered lives. Special rules apply in the event a plan sponsor maintains multiple group health plans covering the same covered lives.
Reporting Requirement: A contributing entity is required to report the number of covered lives for each applicable year no later than November 15th of that year. For example, the first report will be due by November 15, 2014.
To Do Items
In light of the fact that the fee is first payable in December, 2014, no immediate action is needed. However, plan sponsors of self-insured plans may want to begin investigating their options, including hiring a third party to calculate and pay the fee on their behalf. In addition, sponsors of stand-alone HRAs should watch for additional guidance regarding the application of the fee to such plans.
If you have any questions or would like assistance with any of the foregoing items, please contact us.
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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.