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Proposed Transitional Reinsurance Fee Will Impose Significant Costs on Group Health Plans

    Client Alerts
  • December 14, 2012

The Department of Health and Human Services ("DHHS") recently released proposed regulations under the Affordable Care Act regarding the transitional reinsurance fees that will be imposed on group health plans to help stabilize premiums in the individual insurance market from 2014 to 2016. Insurance companies will be responsible for the fees for fully-insured plans, while self-insured plans will be liable for these fees, which may be paid through a third-party administrator. Simultaneously, the IRS confirmed that insurance companies and employers generally may deduct the fees as an ordinary and necessary business expense. 

DHHS estimates that the annual fee for 2014 will be $63 per covered life (all covered employees and dependents). The fees are likely to be due in January of the year following the year for which they are calculated (i.e., 2014 fees will be paid in January 2015). States that decide to establish their own reinsurance program may impose additional fees on fully-insured plans but not on self-insured plans covered by ERISA.

The fees will only apply to plans offering "major medical coverage." They will not apply to coverage that is limited in scope, including: HIPAA "excepted benefits" and other types of plans, such as health care flexible spending accounts (FSAs), health savings accounts (HSAs), health reimbursement accounts (HRAs) and employee assistance plans, wellness programs and disease management programs that do not offer major medical coverage, stand alone dental and vision plans, hospital indemnity coverage, dread disease coverage and stop-loss policies. Plans will be responsible for paying fees for all participants whose coverage is primary to Medicare, but not for participants where Medicare is the primary insurer and the plan is secondary (generally, post-65 retirees).

Additional guidance provides methods for employers and insurers to determine the number of covered lives for purposes of calculating the transitional reinsurance fees. The regulations generally adopt the methods for counting covered lives to determine the fees to fund the Patient-Centered Outcomes Research Institute, which are described here but are payable on a calendar year basis rather than a plan year basis.

An employer with a group health program that provides different coverage options for employees may treat these options as a single self-insured plan for purposes of the fee.

These fees will impact the cost of providing coverage under employer-sponsored group health plans, and employers should consider these fees in estimating costs for upcoming plan years. Employers with self-insured plans will feel the impact of these fees directly, while employers with fully-insured plans can expect insurers to pass along these fees through increases in  insurance rates.