The Department of Health and Human Services (HHS) has issued proposed regulations addressing the transitional reinsurance fee, including 2015 amounts; a new exemption for self-insured, self-administered health plans for 2015 and 2016; and the timing of collections. The proposed rules also address the definition of major medical coverage for fee purposes, audits on contributing entities, counting covered lives and the Form 5500 counting method.

The Patient Protection and Affordable Care Act (PPACA) established the transitional reinsurance fee, which is levied on employers and insurers to finance a temporary reinsurance fund to stabilize premiums in the individual market (inside and outside the exchanges). The fee will be imposed over three years: 2014, 2015 and 2016.

The exemption from the fee for self-insured, self-administered plans and the 2015 contribution amounts are effective for the 2015 benefit year. The proposed regulations are otherwise effective for the 2014 benefit year.

Fee composition and amounts for 2015

The PPACA specified aggregate amounts to be collected each year: $10 billion for 2014, $6 billion for 2015 and $4 billion for 2016. The fees are due in the year following the benefit year and are divided among the reinsurance fund, the U.S. Treasury and administrative expenses. In 2014 and 2015, $2 billion is earmarked for the U.S. Treasury; in 2016, $1 billion is earmarked.

Under the proposed regulation, roughly $8.025 billion will be collected for benefit year 2015: $6 billion for the reinsurance fund, $2 billion for the U.S. Treasury and $25.4 million for administrative expenses. Based on HHS’s estimate of the number of enrollees in contributing plans, the annual per capita contribution rate for 2015 is $44 — $3.67 per month per covered life. This is a reduction from the annual per capita contribution rate of $63 in 2014, or $5.25 per month per covered life.

Exemption for self-insured, self-administered plans

The PPACA requires reinsurance contributions from contributing entities, which are health insurance issuers and third-party administrators on behalf of group health plans. Under the proposed regulations, contributing entities for 2015 and 2016 will not include self-insured group health plans that do not use a third-party administrator for claims processing or adjudication, or for processing and communicating plan enrollment information.

Thus, a self-insured group health plan that uses a third party only for ancillary administrative support would be exempt from the fee for 2015 and 2016. While very few large employer plans are self-insured and self-administered, the proposal may exempt some collectively bargained multiemployer plans that meet those requirements.

Reinsurance fee schedule

The fees are due in the year following the benefit year. HHS proposes to allow contributing entities to pay the annual fee in two installments: the first for reinsurance payments and administrative expenses, and the second for the U.S. Treasury.

Under the proposed reinsurance fee schedule, a contributing entity must submit the enrollment count (the number of covered lives) by November 15 of the benefit year. Then there will be two installment payments:

  1. First installment: HHS will notify the covered entity of the fee amount allocated to reinsurance payments and administrative expenses for the benefit year. Contributing entities will be notified by December, and the payment is due within 30 days.
  2. Second installment: In the fourth quarter of the year after the benefit year, HHS will notify the contributing entity of the contribution amount allocated for payments to the U.S. Treasury. This installment is also due within 30 days after the notification.

For example, of the $63 per capita contribution rate for the 2014 benefit year, $52.50 will be allocated to reinsurance payments and administrative expenses, and $10.50 to the U.S. Treasury. The enrollment count is due from the employer by November 15, 2014, and HHS will invoice in December 2014. The first 2014 installment will be due in January 2015. HHS will invoice another fee payment of $10.50 per covered life in the fourth quarter of 2015, which will be due roughly 30 days later.

HHS is considering other possibilities, such as allowing contributing entities to pay the entire reinsurance amount with the first installment, and is seeking comments on the fee schedule.

Definition of major medical coverage

Reinsurance fees are determined on the basis of each “covered life” enrolled in “major medical coverage.” For this purpose, covered lives include enrolled employees, covered spouses and dependents.

The proposed rules define major medical coverage as coverage for a broad range of health services and treatments, dispensed in various settings, that provides minimum value under the employer shared responsibility rules. Minimum value is calculated on services comparable to the essential health benefits required in individual and small group coverage. An employer-sponsored plan provides minimum value if the plan pays more than 60% of the total allowed benefit costs. HHS believes that familiarity with the PPACA minimum value rule should help clarify who must pay the fee, and the department is seeking comments on this definition.

Compliance audits on contributing entities

Under the proposed rules, HHS may audit contributing entities to assess compliance. The targeted audits would be based on information HHS receives through the annual enrollment count, any history of noncompliance and other criteria. Future guidance will provide more details, including timelines, procedures and substantive requirements. HHS expects these audits to focus on records relating to plan enrollment, and to confirm the number of covered lives and fee amounts. Audits may also identify entities that should have paid the fees but didn’t. HHS is seeking comments on the proposed audits, including governing standards.

Covered lives counted once

As noted in earlier guidance, HHS does not intend for employers and insurers to pay the transitional reinsurance fee more than once for the same covered life. Under the proposed regulations:

  • The transitional reinsurance fee must be paid on major medical coverage considered to be part of a commercial book of business. It need not be paid more than once on the same covered life.
  • The transitional reinsurance fee is not required for employer health plans in either of the following situations:
    • Covered individuals are also enrolled in individual market health coverage for which reinsurance contributions are required. 
    • Coverage is supplemental or secondary to group health coverage for which reinsurance contributions must be made for the same covered lives. An example would be a union offering a plan that supplements an employer group health plan.

HHS is also seeking comments on these proposals, including which entity should be responsible for paying the fee, how to determine that responsibility and what arrangements should be required to ensure efficient coordination. The department also asks for comments on other situations that should be addressed to prevent more than one contribution per covered life.

Form 5500 counting method

The proposed rules change the reference from “benefit year” to “plan year” in the Form 5500 counting method to clarify that self-insured group health plans may use the enrollment count reported in Form 5500, even if the plan is based on a plan year other than the benefit year. The benefit year is defined as a calendar year for which a health plan provides coverage for health benefits.

So, a self-insured group health plan using the Form 5500 counting method and offering self-only coverage would calculate the number of lives by adding the total participants covered at the beginning and end of the most current plan year, as reported on Form 5500, then dividing by two. A self-insured group health plan that offers both self-only coverage and other coverage would calculate the number of covered lives by adding total participants covered at the beginning and the end of the most current plan year, as reported on Form 5500.

Conclusion

Employers with self-insured coverage need to identify an administrator for the transitional reinsurance fee, which will necessitate recordkeeping and calculation of the average number of covered lives. Employers or their vendors/third-party administrators should prepare to pay the 2014 transitional reinsurance fee in two installments in 2015.