On March 11, 2013, the Department of Health and Human Services (“HHS”) published final regulations on the transitional reinsurance fee program (“Final Rules”)established under the Patient Protection and Affordable Care Act (“PPACA”), which is a temporary reinsurance program for the individual market that will be in operation for years 2014 through 2016. As we reported in our December 2012 issue, the goal of the transitional reinsurance fee program is to help stabilize premium coverage in the individual market for high-cost-enrollees who purchase health insurance through the public health insurance exchanges by assessing a reinsurance fee on all health insurance issuers and self-insured group health plans. The Final Rules establish a number of standards and parameters for implementing the transitional reinsurance fee program, including:
- Provisions excluding certain types of health insurance coverage and plans from reinsurance contributions
- The national per capita contribution rate and methodology for calculating the reinsurance contributions to be paid by health insurance issuers and self-insured group health plans
- Provisions establishing eligibility for reinsurance payments
- The uniform reinsurance payment parameters and the approach that HHS will use to calculate and administer the reinsurance program on behalf of a State
- The distributed data collection approach HHS will use to implement the reinsurance program
We note that these rules finalize the provisions of the proposed regulations in substantially the form previously issued by HHS and addressed in our December 2012 issue. However, the Final Rules contain notable clarifications and modifications to the proposed rules, and notable comments by HHS in the Preamble, that we believe are relevant for employers. This article summarizes those notable provisions and provides employers with next steps as we move towards 2014 implementation of the transitional reinsurance fee program.
The Final Rules are effective April 30, 2013.
Notable Provisions in the Preamble to the Final Regulations on Transitional Reinsurance Fees
HHS Notes that Reinsurance Contributions are Permissible ERISA Plan Expenses
In response to comments submitted on the proposed rules, HHS states in the Preamble to the Final Rules that it was advised by the Department of Labor (“DOL”) that paying reinsurance contributions would constitute a permissible expense of a plan for purposes of Title I of the Employee Retirement Income Security Act. HHS further states that if any entity needed clarification regarding its particular plan expenses, it should contact the DOL.
HHS Clarifies Statutory Limits on Its Authority
The Preamble to the Final Rules also contains HHS’s attempt to clarify the scope of its authority in administering the transitional reinsurance fee program. Since the transitional reinsurance fee program was established under federal law, HHS noted that it has no authority to make any significant changes to the program, and more specifically has no statutory authority to take the following actions:
- Extend the transitional reinsurance fee program beyond 2016
- Grant waivers from participating in the reinsurance fee program
- Exclude court-ordered voluntary employee beneficiary associations, employer-provided retiree coverage, or jointly administered Taft-Hartley plans that provide health coverage to collective bargained employees, from making reinsurance contributions if the coverage does not meet one of the general exceptions (e.g., it is not major medical coverage)
- Change the statutory amount of collections to be received for 2014
- Exclude self-insured group health plans from making reinsurance contributions, even if they are excluded from receiving reinsurance payments
- Defer collection of the $2 billion payable to the U.S. Treasury in 2014 until 2016
Notable Provisions of the Final Regulations on Transitional Reinsurance Fees
HHS Clarifies Definition of Contributing Entity
HHS has revised the definition of Contributing Entity under the Final Rules to mean a health insurance issuer or self-insured group health plan. HHS also clarified within this definition that, although a self-insured group health plan may elect to use a third-party administrator (“TPA”) or administrative services only contractor (“ASO”) for transferring its reinsurance contributions, the self-insured group health plan is ultimately responsible for its reinsurance contributions, including reporting its enrollment counts to HHS. HHS stated that the revised definition was necessary to clarify the liability of any TPA or ASO utilized by a self-insured group health plan to perform these functions. HHS further stated that it anticipates issuing guidance on the submission of reinsurance contributions for contributing entities that are health insurance issuers in the near future.
HHS Expands List of Types of Excluded Entities
HHS has revised the list of the types of coverage provided by health insurance issuers and self-insured group health plans for which a contributing entity is not required to make reinsurance contributions under the Final Rules to also exclude:
- Plans providing expatriate health coverage, as defined by the Secretary of HHS. HHS stated that it plans to issue guidance to define expatriate coverage and explain the applicability of PPACA to such coverage in the near future
- Employer provided health coverage that would be secondary to Medicare coverage under section 1862(b) of the Social Security Act and the regulations issued thereunder
- Plans or coverage consisting solely of prescription drug benefits
HHS Makes Technical Corrections to National Contribution Rate Provisions
HHS has made technical corrections to the national contribution rate provisions under the Final Rules to clarify that each contributing entity must make reinsurance contributions at the national contribution rate. HHS has also clarified that it will notify a contributing entity of the amount of its reinsurance contributions to be paid for a benefit year by the later of:
- 30 days after the submission of the annual enrollment count; or
- December 15.
HHS has also clarified that reinsurance contributions are calculated by multiplying the number of covered lives of reinsurance contribution enrollees during the applicable benefit year for all contributing entities by the national contribution rate.
HHS Makes Technical Corrections to Multiple Coverage Options and Multiple Plans Provisions
HHS has made technical corrections to the multiple coverage options and multiple plans provisions under the Final Rules. HHS has also clarified that the following are excluded from the counting rules for purposes of determining covered lives:
- Excepted benefit plans
- Health reimbursement arrangements
- Health savings accounts
- Health flexible spending arrangements
- Prescription drug plans
HHS stated that this clarification was designed to give contributing entities flexibility in performing enrollment counts without double-counting.
HHS also provided that plan sponsors with multiple coverage options or multiple plans have the following options:
- A plan that provides a self-insured coverage option and an insured coverage option may use any of the counting methods specified for self-insured coverage or insured coverage, as applicable to each option, if it determines the number of covered lives under each option separately, as if each coverage option provided major medical coverage (not including any coverage option that consists solely of excepted benefits, that only provides benefits related to prescription drugs, or that is a health reimbursement arrangement, health savings account, or health flexible spending arrangement).
- A plan sponsor may treat multiple plans as separate group health plans for purposes of calculating any reinsurance contribution due if it determines the number of covered lives under each separate group health plan as if the separate group health plan provided major medical coverage.
HHS stated that it anticipates issuing guidance on the submission of enrollment counts and contributions in the near future.
HHS has made it clear that the transitional reinsurance fee program will be in effect in 2014, and that the national contribution rate for 2014 will be $5.25 per covered life per month for a total of $63 per covered life per year. It is therefore important that employers begin to consider the following:
- Establishing recordkeeping and calculation procedures for determining the number of covered lives for each group health plan that you maintain
- Deciding whether you will utilize a TPA or ASO to collect reinsurance contributions and transmit them to HHS, and negotiating the administrative fees that will be charged for such services