The Patient Protection and Affordable Care Act (ACA) will significantly expand the number of Americans covered by health insurance. This increase and other insurance market reforms in the ACA are expected to significantly alter the individual health insurance market and cause pricing uncertainties for insurers.
To help stabilize the individual insurance market, the ACA includes the Transitional Reinsurance Program, which will raise a total of $25 billion in 2014, 2015, and 2016 through a fee imposed on insurance companies and employers that provide health coverage. The money will be used to reimburse insurance companies who experience higher than normal claims costs in the individual insurance market.
In 2014, the fee is projected to be $63 per life covered by medical insurance or an employer-sponsored self-insured medical plan (including participants and their dependents). The fee is projected to decline to $42 and $26.25 in 2015 and 2016, respectively.
Who pays the fee?
For insured plans, insurers are responsible to calculate and pay the fee (although they are expected to pass the cost to employers who provide medical insurance to their employees). For employer-sponsored self-insured plans, employers are directly responsible to calculate and pay the fee.
When is the fee due?
The fee is generally calculated based on the average number of covered lives during the first three quarters of each calendar year, under rules issued by the Department of Health and Human Services (HHS). By November 15 of the applicable year, insurers and employers must report the average number of covered lives during the year to HHS (for example, the initial report is due November 15, 2014). Within 15 days, HHS will give the insurer or employer notice of the total fee due. The insurer or employer must pay the fee within 30 days of notification of the amount due.
What types of coverage does the fee apply to?
The fee only applies to major medical coverage. Accordingly, the fee does not apply to the following types of coverage as long as participants are not also covered under a major medical plan:
- Standalone vision and dental plans
- Health flexible spending accounts (also known as FSAs)
- Employee assistance programs
- Wellness programs
However, the fee does apply to the following:
- Retiree coverage, unless the coverage pays secondary to Medicare
- COBRA coverage
HHS rules generally limit a single participant from being counted twice for the purpose of calculating the fee, regardless of whether the participant is covered by multiple plans.
What can employers do now?
Employers with insured plans should contact their insurers to discuss how the fee will affect pricing over the next few years. Employers with self-insured plans should work with their third-party administrators to estimate the fee and to confirm that procedures are in place to accurately count covered lives in accordance with HHS rules.
For more information about health care reform or any employee benefit issues, please contact a member of our health care group or call 208.344.6000.