Summary: The $63 per year/per covered life transitional reinsurance fee (TRF) to be paid to the federal government by insured and self-insured group health plans beginning in 2014 has been confirmed in a final regulation from the Department of Health and Human Services (HHS). The final TRF rule will appear in a large regulation to be published in the March 11, 2013 Federal Register titled "Notice of Benefit and Payment Parameters for 2014." The final TRF rule substantially follows the proposed rule published in December 2012.
Affected Plans: Employer group health plans that are insured or self-insured will generally be subject to the TRF, including active and pre-65 retiree coverage; however, some health coverages, described below, will avoid the TRF, including coverage where Medicare pays primary to the employer plan (i.e., post-65 employer supplemental coverage).
Timing: The TRF applies to calendar-years 2014 through 2016. The first TRF payment will be owed to HHS in December 2014 with respect to the 2014 calendar year. Congress would need to amend the law to extend the TRF beyond 2016. The final regulation is effective May 10, 2013.
Key Implications: The $63 per year/per covered life TRF for 2014 represents a material additional expense for employer plan sponsors, albeit one that is scheduled to decline in 2015 and then cease after 2016. Employers with calendar-year plans need to build this expense into budget rates for the 2014 calendar year (and for months falling in 2014 for non-calendar-year plans). Employers also need to identify who will administer the TRF payment within their organization, as recordkeeping and calculation of the average number of covered lives will be required.
General Discussion and Observations
When drafting the Patient Protection and Affordable Care Act (PPACA), Congress tapped employers and insurers to bear the cost of a temporary reinsurance fund that will seek to stabilize premiums for coverage in the reformed individual health insurance market (inside and outside the exchanges) for a three-year period from 2014 through 2016.
For 2014, the PPACA calls for collecting approximately $12.02 billion for this purpose: $10 billion for the reinsurance program, $2 billion for the U.S. Treasury and an estimated $20 million to administer the program. HHS has determined that this requires a per capita contribution rate of $63.00 in 2014, or $5.25 per month per covered life. That amount drops to approximately $8 billion in 2015 and $5 billion in 2016, with the per capita TRF amount expected to drop proportionally.
In states that choose to operate their own TRF program, the PPACA also permits a state to collect a supplemental assessment (beyond the $63 per capita TRF paid to HHS) on insured products in the state to cover administrative expenses of the state TRF program. States may not assess self-insured plans for these additional state administrative expenses. HHS will administer the three-year reinsurance program for insurers in the individual market in states that choose not to operate their own TRF program.
Insurers and plan sponsors are permitted to deduct the TRF expense as an ordinary and necessary business expense. The DOL has also confirmed that TRF contributions will be a valid plan expense under ERISA and thus may be paid from plan assets of the PPO, HMO, HDHP or other such major medical coverage involved.
Making the TRF Payment
Contributing entities are required to make the TRF payments annually to HHS. A “contributing entity” is an insurer, or a third-party administrator (TPA) or administrative services only (ASO) vendor on behalf of a self-insured group health plan. Insurers are responsible to make TRF payments on insured coverage. For self-insured plans, the plan is liable, although a TPA or ASO vendor may make the TRF payment on behalf of a self-insured plan at the plan’s discretion. Thus, although self-insured plans are ultimately liable for TRF contributions, a TPA or ASO vendor may be contracted to make the payments. A self-insured plan that is self-administered by the employer would presumably need to make the TRF payment directly to HHS.
TRF Contributions Apply to Major Medical Coverage
The final rule provides that TRF contributions must be made with respect to "major medical coverage" which includes health coverage for a broad range of services and treatments, including diagnostic and preventive services, as well as medical and surgical conditions. As a practical matter, this covers typical preferred provider organization (PPO), health maintenance organization (HMO) and high-deductible health plan (HDHP) coverage offered by employers, whether insured or self-insured.
COBRA or other continuation coverage is employment-based group health coverage, albeit usually paid for entirely by the former employee or other qualified beneficiary. For purposes of the TRF, COBRA coverage generally qualifies as major medical coverage (e.g., continuation of a PPO, HMO or HDHP option) and if no other exception applies, it will be subject to the TRF contribution.
Where an individual has both Medicare and employer-provided coverage, the plan looks to the Medicare Secondary Payer (MSP) rules to determine whether the employer coverage is considered major medical coverage. For this purpose, if Medicare is the primary payer, the employer (secondary) coverage would not be considered major medical coverage and would not be subject to the TRF contribution. This is why an employer’s post-65 retiree medical coverage that supplements Medicare will not be subject to the TRF contribution (but pre-65 retiree coverage will be subject to the TRF contribution even if it is retiree-only coverage).
Insured Medicare Products
Insured products under Medicare Parts C or D (i.e., prescription drug plan (PDP), Medicare Advantage prescription drug (MA-PD), employer group waiver plan (EGWP) will not be subject to the TRF requirement, as these are considered governmental books of business, not commercial books of business.
The TRF contribution requirement does not apply to several other types of coverage, including:
- Excepted benefits under HIPAA (such as stand-alone dental and vision coverage
- Health reimbursement arrangement (HRA) coverage that is integrated with a self-insured group health plan or health insurance coverage
- Health savings accounts (HSAs)
- Health flexible spending arrangements (health FSAs)
- Employee assistance plans (EAPs), disease management programs or wellness programs that do not provide major medical coverage
- Plans limited to prescription drug benefits
- Stop loss or indemnity reinsurance policies
- TRICARE and other military health benefits
- Coverage provided by Indian tribes to tribal members and their dependents
- Indian Health Service health programs
- Medicare (if primary), Medicaid or CHIP
- Federal or state high-risk pools, including the Pre-Existing Condition Insurance Plan Program
- Basic health plan coverage offered by insurers under contract with a state
Calculating the TRF
The TRF contribution must be made for all “reinsurance contribution enrollees,” which includes all individuals covered by a plan for which reinsurance contributions must be made — employee, spouse, children, domestic partners, etc. The TRF contribution is determined by multiplying the average number of covered lives of reinsurance contribution enrollees during the applicable benefit year (the calendar year) by the contribution rate for the applicable benefit year.
A contributing entity, such as a self-insured plan (its TPA or ASO vendor) or an insurer, will make the TRF payment to HHS annually. HHS will collect contributions on behalf of states, and will collect amounts for both insured and self-insured plans under the national contribution rate. The self-insured plan or the insurer will submit an annual enrollment count of the average number of covered lives of reinsurance contribution enrollees to HHS. Within 15 days of the submission of this annual enrollment count, or by December 15 if later, HHS will notify the contributing entity of the TRF contribution amount to be paid for that year. The contributing entity will then remit the contribution to HHS within 30 days after the notification date.
The final rule provides several methods for counting covered lives. Insured plans may use an actual count method, snapshot method or member-months method. Self-insured plans may use an actual method, snapshot method or Form 5500 method. The preamble clarifies that a plan would not have to use the same counting method for the TRF calculation that is used for purposes of the PCORI fee.
The final rule indicates that if a plan sponsor maintains two or more self-insured plans that collectively provide major medical coverage for the same covered lives, then those multiple plans should be treated as a single self-insured group health plan for the purpose of calculating the TRF contribution amount.
An exception specifies that a plan sponsor would not be required to include, as part of a single self-insured plan, coverage that consists solely of excepted benefits or that only provides benefits related to prescription drugs. In addition, the plan sponsor must report to HHS the counting method used and the names of the multiple plans being treated as a single group health plan.