Guidance on Transitional Reinsurance Fees Brings Holiday Gifts for Some Employers and Coal for Others

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1 Guidance on Transitional Reinsurance Fees Brings Holiday Gifts for Some Employers and Coal for Others December 2013 The U.S. Department of Health and Human Services (HHS) provided additional guidance on the transitional reinsurance fees that group health plans must pay beginning in 2014, on December 2, The proposed regulations: Set the reinsurance fee for 2015 at $44 per covered life; Adjust the timing for the collection of reinsurance contributions, starting in 2014; Exclude self-insured and self-administered group health plans from having to pay the reinsurance fee in 2015 and 2016; Include a specific definition of major medical coverage; Clarify how certain covered lives are counted; Describe audits of contributing entities subject to the fee; and Propose the 2015 maximum cost-sharing amounts. Background The transitional reinsurance fee is assessed on fully-insured and self-insured group health plans from 2014 to Under the Patient Protection and Affordable Care Act (Affordable Care Act), these funds will be used for a reinsurance program that will make payments to health insurance issuers in the federal Exchanges (marketplaces) to help smooth out the risk pool until the exchanges are fully functional. In March 2013, HHS published a final rule setting the transitional reinsurance fee for 2014 at $63 per covered life. Fee in 2015 The proposed regulations set the transitional reinsurance fee for 2015 at $44 per covered life. The total amount to be collected for 2015 is approximately $8.025 billion, consisting of the reinsurance payment, the contribution to the Treasury (to offset the Early Retiree Reinsurance Program (ERRP)), plus an administrative fee. The Gift of Time Paying the Fee in Installments The proposed regulations provide that HHS will collect the reinsurance payment for each year in two installments. A contributing entity (the entity required to pay the reinsurance fee) will make one payment at the beginning of the calendar year following the applicable benefit year and one at the end of year following the applicable year. The installment payments are intended to lessen the upfront financial burden for employers and other contributing entities. Under this arrangement, the first payment would include the reinsurance contribution amounts allocated to the reinsurance payments and administrative 1

2 expenses, and the second installment would cover the portion of the fee allocated to payment to the Treasury. The contributing entity would be required to submit only one annual enrollment count for each benefit year, so employers will not be required to do another separate enrollment count for the second payment each year. The installment payments for 2014 would work as follows: For the 2014 benefit year, $63.00 is the annual per capita contribution rate. Of that $63.00, $52.50 is allocated towards reinsurance payments and administrative expenses, and $10.50 towards payments to the Treasury. The contributing entity submits its enrollment count for the 2014 benefit year in a timely manner (by November 15, 2014). A reinsurance contribution payment of $52.50 per covered life will be invoiced in December 2014 and payable in January Another reinsurance contribution payment of $10.50 per covered life will be invoiced in the fourth quarter of 2015 and payable late in the fourth quarter of The 2015 and 2016 reinsurance payments would follow the same timing pattern. For the 2015 benefit year, the proposed $44 per capita contribution rate will allocate $33 for reinsurance and administrative expenses for the first installment, which will be payable at the beginning of The remaining $11 for the payment to the Treasury will be paid at the end of HHS has asked for comments regarding whether employers should have the choice to pay the fee in one installment or two. And the Coal, for Most Self-Insured Employers Contributing entities are those entities that are responsible for paying the transitional reinsurance fee. Contributing entities include health insurance issuers and all self-insured group health plans in 2014, although self-insured plans may use a third party administrator (TPA) to remit the fee. In the proposed regulations, HHS revised the definition of contributing entity to exempt an employer from paying the transitional reinsurance fee for 2015 and 2016 if the employer self-insures and self-administers their benefits for 2015 and Self-insured employers that use a TPA for claims processing, adjudication, and/or enrollment, will not be exempt and will still be required to pay the transitional reinsurance fee. However, plans that self-insure and self-administer benefits such as many multiemployer plans and Taft-Hartley plans will be exempt from paying the fee for 2015 and 2016, but not for A TPA assists with claims processing, adjudication, and/or enrollment in the self-insured employer s plan. For purposes of determining whether a self-insured employer uses a TPA, the proposed regulations state that a TPA is an entity that is not under common ownership or control with the self-insured group health plan sponsor. Thus, a self-insured employer that is a member of the TPA s controlled group would not be considered to be using a TPA and would be eligible for the exemption. HHS has requested comments on this part of the proposed regulations, as well as: Whether certain types of service providers, such as an attorney providing legal advice in connection with claims adjudication or an issuer administering an insured component of a group health plan that is partially self-insured and partially insured, should be considered a TPA for this purpose. 2

3 Whether the core administrative functions described above are the appropriate criteria for determining whether an employer uses a TPA, and what other administrative functions, such as medical management services, provider network development, or other support tasks, should be considered in determining whether a self-insured group health plan uses a TPA. Whether a self-insured group health plan must perform the core administrative functions for all health care benefits and services, or whether certain benefits or services, such as pharmaceutical benefits or behavioral health benefits, or a de minimis or small percentage of all benefits and services, may be performed by an unaffiliated service provider, and, if so, how a de minimis or small percentage should be measured. Whether a plan sponsor that maintains two or more group health plans covering the same lives where one or more group health plans are insured and one or more are self-insured and do not use a TPA for core administrative functions should be required to treat the multiple plans as a singe group health plan. Major Medical Coverage Since the transition reinsurance fee is only required to be paid by contributing entities that provide major medical coverage, the proposed regulations define major medical coverage as health coverage for a broad range of services and treatments provided in various settings that provides minimum value, as defined in the Affordable Care Act. Presumably, participants in plans that do not provide major medical coverage for example, plans that do not provide minimum value will not be counted for purposes of calculating the reinsurance fee. How to Count Lives Form 5500 Method The counting rules generally remain the same from the March 2013 final regulations, so that self-insured group health plans can use the actual or snapshot count method, the snapshot factor method, or the Form 5500 method. The proposed regulations clarify that a plan with a non-calendar year plan year may use the Form 5500 method. Therefore, according to the proposed regulations, a self-insured group health plan that chooses to use the Form 5500 counting method and offers self-only coverage would calculate the number of lives covered by adding the total participants covered at the beginning and end of the most current plan year, as reported on the Form 5500, then dividing by two. A self-insured group health plan that offers both self-only coverage and coverage other than self-only coverage would calculate the number of lives covered by adding the total participants covered at the beginning and the end of the most current plan year, as reported on the Form U.S. Territories The proposed regulations provide that a contributing entity does not have to count enrollees whose primary residence is in a territory that does not operate a reinsurance program. Currently, no U.S. territories operate a reinsurance program, therefore participants who reside in these territories do not need to be counted for purposes of calculating the reinsurance fee. Contributing entities may use any reasonable method to determine the primary residence of an enrollee, including using the last-known mailing address of the principal subscriber. HHS is requesting comments on other acceptable methods. 3

4 Audits The proposed regulations would allow HHS or its designee to audit a contributing entity to assess compliance. According to the preamble, HHS anticipates conducting targeted audits based on data provided to HHS through the annual enrollment count and any previous history of noncompliance. Audits are anticipated to focus on records related to enrollment, calculation of the number of covered lives, and confirming the correct reinsurance amount was paid. Further details on the audit program will be provided in future guidance. Maximum Annual Limit on Cost Sharing Finally, the preamble to the proposed regulations proposes that the 2015 maximum annual limit on cost sharing be $6,750 for self-only coverage and $13,500 for other than self-only coverage. This amount is based on the proposed premium adjustment percentage of 6% and the 2014 maximum annual limitation on cost sharing of $6,350 for self-only coverage. Comments Comments on the proposed regulations are due by December 26, Resources The proposed regulations are available at: Aon Hewitt s Regulatory Guidance Under the Affordable Care Act page, which provides links to Aon Hewitt bulletins on Affordable Care Act guidance and regulations, is available at: 4

5 About Aon Hewitt Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt, please visit Aon plc This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Aon Hewitt s preliminary analysis of publicly available information. The content of this document is made available on an as is basis, without warranty of any kind. Aon Hewitt disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Aon Hewitt reserves all rights to the content of this document. 5