The Internal Revenue Service (“IRS”) recently announced that it was cancelling a public hearing on the proposed rules relating to the excise tax on health plans to fund comparative effectiveness research – otherwise known as the Patient-Centered Outcomes Research Trust Fund (“PCORTF”) fee. Why? Because the IRS said no one had anything to say about the new fee.
Well, employers may have a lot to say about the assessment that sponsors of self-insured group health plans will have to pay to fund the “transitional” reinsurance program. Based on informal conversations with the Federal agencies, the contribution rate under the reinsurance program is expected to be around $60 per covered life. This means $60 for each employee, their spouse, and their dependents, if any. This amount pales in comparison to the $2 PCORTF excise tax.
What Is the “Transitional” Reinsurance Program?
Section 1341 of the Patient Protection and Affordable Care Act (hereinafter referred to as the “new health care reform law”) directs each State to establish and maintain a “transitional” reinsurance program beginning in 2014. The underlying intent of a reinsurance program is to mitigate the effects of adverse selection that could result in a State’s fully-insured, individual health insurance market once the majority of the new health care reforms come on-line in 2014.
How Much Money Will Be Collected to Fund a Reinsurance Program?
Amounts collected to fund the reinsurance program will total $10 billion in 2014, $6 billion in 2015, and $4 billion in 2016. An additional amount equal to $2 billion in 2014, $2 billion in 2015, and $1 billion in 2016 will be collected and deposited in the general fund of the U.S. Treasury. Importantly, States are permitted to collect more than these amounts if the State believes that such amounts are not sufficient to cover its reinsurance payments or administrative costs.
How Will a Reinsurance Program Be Funded?
A reinsurance program will be funded through contributions made by (1) insurance companies that sell health plans in the fully-insured individual and group health insurance markets AND (2) third-party administrators (“TPAs”) on behalf of self-insured plans. Contribution amounts will be based on a national “contribution rate,” which will be announced by HHS each calendar year.
Who Will Receive Reinsurance Payments Under the Program?
Reinsurance payments under the program will be made to health insurance companies that provides health insurance coverage to “high-risk individuals” in the individual health insurance market.
Does a Reinsurance Program Benefit Self-Insured Plans?
No. Although self-insured plans are required to contribute to a reinsurance program, as stated, the reinsurance payments go directly to those insurance companies selling products in a State’s fully-insured, individual health insurance market that end up insuring high-cost individuals.
How Long Will the Reinsurance Program Run?
The reinsurance program is temporary (i.e., the program in only intended to remain in place for 3 years, through 2016). However, final regulations indicate that States may choose to continue a reinsurance program, even after 2016.
What Should You Do?
HHS has informed us that the agency will publish an official contribution rate for 2014 this Fall. As the per person cost is expected to be significant, plan sponsors need to include this new assessment in their financial forecasting for 2014. It might be advisable to engage the agency officials well before that time to illustrate what a $60 per covered life contribution rate would mean for your company. This can be done through face-to-face meetings. In addition, once HHS publishes the contribution rate for 2014, your company will have an opportunity to submit public comments.