Beginning in 2014, individuals and small businesses (companies with under 50 employees) will be able to purchase health insurance through state or federal based Exchanges. Individuals who enroll in health plans through an Exchange may receive premium tax credits for purchasing coverage through the Exchange. It is anticipated that this will increase the number of individuals with health coverage, particularly in the individual market. Health care reform tries to anticipate potential issues with the increased number of covered lives (presumably, many with adverse health factors) through the creation of premium stabilization programs. These programs, which include risk adjustment, reinsurance, and risk corridors, are intended to protect against adverse selection for newly enrolled individuals. Along with other programs, such as guaranteed issue, nondiscrimination based on health status, and stabilization of rates, premium stabilization programs are intended to help keep premiums reasonable for coverage in the individual market for 2014, 2015 and 2016- the first three years that health care Exchanges are in operation.
The Affordable Care Act allows states the option of establishing stabilization programs or letting the federal government to come in to run a reinsurance program for the state.
Estimated Contributions. The Department of Health and Human Services released proposed regulations addressing the amount of annual contributions that an employer-sponsored group health plan must pay to HHS to fund state transitional reinsurance programs. The government has estimated that the annual contribution for 2014 will be $63 per covered life per year (both employees and dependents), or $5.25 per covered life, per month.
Assessment of Fee. The fee is assessed on insurers of insured plans and administrators of self-funded plans. However, the guidance clarifies that the self-insured plan is the entity liable for payment, although it may use a third party administrator or other contractor to transfer the contributions on its behalf. The regulations also confirm that a self-insured plan that does not use an outside administrator would make the reinsurance fee payment directly.
Covered Life. A covered life for purpose of the fee includes all individuals covered under the plans. This means a fee is assessed on both a covered employee and on each of the employee's family members covered by the plan. Like the Patient-Centered Outcomes Research Institute Fee (see our article dated December 13, 2012), contributions are required only for employer provided major medical coverage and not for excepted benefits. Therefore, stand alone dental plans, FSAs, EAPs, vision plans, etc., will not be subject to the fee assessment.
Payment of the fee is deductible as an ordinary and necessary business expense. Payment of the fee, which can be significant depending on the number of covered lives, will almost certainly impact the cost of providing coverage under an employer-sponsored group health plan if the plan passes costs on to participants.
