Last month, Trucker Huss reported on the transitional reinsurance program established under the Patient Protection and Affordable Care Act (“PPACA”). This is a temporary reinsurance program for the individual market that will be in operation for years 2014 through 2016. The goal of the transitional reinsurance program is to help stabilize premium coverage in the individual market for high-cost-enrollees who purchase health insurance through the public health insurance exchanges by assessing a reinsurance fee on all health insurance issuers and self-insured group health plans. The Department of Health and Human Services (“HHS”) previously issued guidance that described standards related to the reinsurance program for health insurance issuers and self-insured group health plans. However, as we indicated in our November 2012 issue, those standards left several open questions that were of concern to employers.
On November 28, 2012, HHS issued proposed regulations on these reinsurance fees that address some of the open questions and will help employers prepare for national implementation of the transitional reinsurance program in 2014. Below, we summarize the provisions of the proposed regulations that relate to the reinsurance fees to be paid by health insurance issuers and self-insured group health plans that we believe have the most impact on employers. We note that the proposed regulations also address other PPACA provisions that will not be discussed in this article. Comments on the proposed regulations are due to HHS no later than 5 p.m. on December 31, 2012.
HHS to Collect All Reinsurance Fees
HHS proposes to collect reinsurance contributions annually from all contributing entities, including those in States that will be operating their own reinsurance program. Contributing entities include the health insurance issuer for an insured group health plan and the third-party administrator for a self-insured group health plan. Although a third-party administrator for a self-insured group health plan may remit the reinsurance fees, the plan is liable for them. A self-insured, self-administered group health plan will remit the reinsurance contributions directly to HHS. In addition, HHS proposes to implement a national, uniform calendar under which reinsurance contributions will be collected from all contributing entities, and reinsurance payments will be disbursed to issuers of non-grandfathered individual market plans.
HHS to Apply National Uniform Contribution Rate
HHS proposes that a national per capita uniform contribution rate should be applied to all reinsurance contribution enrollees each year in accordance with the parameters set forth in the annual HHS notice of benefit and payment parameters. HHS also proposes that national attachment points, national reinsurance caps and national coinsurance rates should apply each year. If a State chooses to collect additional reinsurance contributions, then HHS proposes that the rate of such additional contributions must be set under the State’s supplemental reinsurance payment parameters pursuant to certain guidelines. National reinsurance payments and State supplemental reinsurance payments will be treated as two separate funds.
Estimated National Per Capita Contribution Rate for 2014
PPACA sets forth the amounts that are required to be collected each year under the transitional reinsurance program. For 2014, $10 billion is to be collected for the national reinsurance rate, $2 billion is to be collected for U.S. Treasury contributions and an additional amount is to be collected to cover the administrative costs of the transitional reinsurance program. HHS estimates the national per capita uniform contribution rate for 2014 to be $5.25 per covered life per month for a total of $63 per covered life per year. HHS calculated this rate by:
- adding up the three amounts that it is required to collect from contributing entities in 2014; and
- dividing that sum by the estimated number of enrollees in plans that will be required to make reinsurance contributions in 2014.
Formulas for Calculating Covered Lives for Reinsurance Contributions
HHS proposes several methods that may be used to determine the average number of covered lives for reinsurance contributions. These methods are based on the methods permitted for determining the numbered of covered lives for purposes of calculating the fees owed for the Patient-Centered Outcomes Research Trust Fund (“PCORTF”), and are as follows:
- Actual Count Method: This method may be used by both health insurance issuers and self-insured group health plans, subject to certain conditions. Under this method, the number of covered lives is determined by taking the sum of the number of lives covered under the plan for each day of the first nine months of the benefit year and then dividing that total by the number of days in those nine months. For a calendar year plan this would include the months of January through September.
- Snapshot Count Method: This method may be used by both health insurance issuers and self-insured group health plans, subject to certain conditions. Under this method, the number of covered lives is determined by totaling the number of lives covered under the plan on one date during each of the first three quarters of the benefit year and then dividing that sum by three. The same months must be used each quarter (for example, January, April and July; the first month of each quarter). The determination can be made on more than one date in each quarter, provided that an equal number of dates are used in each quarter and the dates are within the same week of each quarter.
- Member Months Method or State Form Method, This method may only be used by health insurance issuers, subject to certain conditions. Under this method, the number of covered lives is determined by multiplying the average number of policies in effect for the first nine months of the benefit year by the ratio of covered lives per policy in effect, calculated using the prior National Association of Insurance Commissioners (“NAIC”) Supplemental Health Exhibit (or a form filed with the issuer’s State of domicile for the most recent time period).
- Snapshot Factor Method This method may only be used by self-insured group health plans, subject to certain conditions. Under this method, the number of covered lives is determined by adding the totals of lives covered on any date (or multiple dates if an equal number of dates are used for each quarter) in each of the first three quarters of the benefit year. For this purpose, the same month in the quarter must be used for each quarter (for example, January, April and July), and the date used for the second and third quarters must fall within the same week of the quarter as the corresponding date used for the first quarter. The number of lives covered on any date is calculated by adding:
the number of participants with self-only coverage on that date; and the number of participants with coverage other than self-only coverage (i.e., employee plus one or family coverage) on that date multiplied by a factor of 2.35.
-If multiple dates in a quarter are used, the total of the number of lives on those dates is then divided by the number of dates on which a count was made.
Form 5500 Method: This method may only be used by self-insured group health plans, subject to certain conditions. Under this method, for a plan that offers self-only coverage, the number of lives is determined by adding the total participants covered at the beginning and end of the benefit year, as reported on the Form 5500, and dividing by two. For a plan that offers other than self-only coverage (i.e., employee plus one or family coverage), the number of lives is determined by adding the total participants covered at the beginning and end of the benefit year, as reported on the Form 5500.
The proposed regulations provide additional guidance for sponsors of multiple plans as follows:
- If a plan sponsor maintains two or more self-insured group health plans (including one or more group health plans that provide health insurance coverage) that collectively provide major medical coverage for the same covered lives, then those multiple plans shall be treated as a single self-insured group health plan for purposes of calculating any reinsurance contribution amount due under the Actual Count Method, Snapshot Count Method, Member Months Method or State Form Method.
- A plan sponsor is not required to include as part of a single self-insured group health plan, for purposes under the aggregation rule described above, any self-insured group health plan (including a group health plan that provides health insurance coverage) that consists solely of excepted benefits as defined under Section 2791(c) of the Public Health service Act (for example, a stand-alone dental or vision plan or that only provides benefits relating to prescription drugs).
- If at least one of the multiple plans is an insured plan, the average number of covered lives must be calculated using the Actual Count Method or Snapshot Count Method applied across the multiple plans as a whole. In addition, the plan sponsor must determine and report to HHS, in a manner and timeframe specified by HHS:
the average number of covered lives calculated;
the counting method used; and the names of the multiple plans being treated as a single group health plan.
- If each of the multiple plans is a self-insured group health plan, the average number of covered lives must be calculated using the Actual Count Method, Snapshot Count Method or Snapshot Factor Method applied across the multiple plans as a whole.
In addition, the plan sponsor must determine and report to HHS, in a manner and timeframe specified by HHS;
the average number of covered lives calculated; the counting method used; and the names of the multiple plans being treated as a single group health plan.
Entities Excluded from Making Reinsurance Contributions
HHS also proposes to expand the types of coverage provided by health insurance issuers and self-insured group health plans for which a contributing entity is not required to make reinsurance contributions.
The proposed excluded types of coverage are as follows:
- Any group health plan or coverage that does not provide major medical coverage, or in the case of a health insurer, coverage that is not considered to be part of the issuer’s fully-insured commercial book of business for all major medical products, or coverage that is not issued on a form filed and approved by a state
- Coverage consisting solely of excepted benefits (for example, a stand-alone dental or vision plan)
- Coverage offered by an insurer under a contract to provide benefits under Medicaid, the Children’s Health Insurance Program or a State or Federal high-risk pool
- Basic heath plan coverage offered by an insurer under contract with a state under Section 1331 of PPACA
- Health reimbursement arrangements that are integrated with major medical coverage
- Health savings accounts
- Health flexible spending arrangements
- Employee assistance plans, disease management programs and wellness programs, if they do not provide major medical coverage
- Stop-loss and indemnity reinsurance policies
- TRICARE and other military health insurance for active duty and retired uniformed services personnel and their dependents
- Indian Tribe or Tribal member plans and health programs operated under the authority of the Indian Health Service. However, a group health plan provided by an Indian Tribe to employees or retirees or their dependents based on current or former employee status would be subject to reinsurance contributions
In addition, the proposed regulations exclude coverage provided under Medicare. However, the preamble to the proposed regulations provides that that when an individual has both Medicare coverage and employer-provided group health coverage, the Medicare Secondary Payer (“MSP”) rules under Section 1862(b) of the Social Security Act would be applicable and the group health coverage would be considered major medical coverage if the group health coverage is the primary payer of medical expenses (and Medicare is the individual’s secondary payer) under the MSP rules. The Preamble also states that an individual covered under a group health plan with only Medicare Part A (hospitalization) benefits (where Medicare is the primary payer), would not be counted for purposes of reinsurance contributions because the group health coverage would not be considered major medical coverage. HHS also stated in the Preamble that it intends that individuals entitled to Medicare because of disability or end-stage renal disease that have other primary coverage under the MSP rules be treated consistently with the working aged, as described in this paragraph. HHS is seeking comments on the proposed exception for Medicare-eligible individuals.
Next Steps for Employers
Under the proposed regulations, no later than November 15 of 2014, 2015 and 2016, respectively, each contributing entity must submit its annual enrollment count to HHS of the number of covered lives for purposes of its reinsurance contributions for that year. Within 15 days of that submission (or by December 15th, if later), HHS will notify the contributing entity of its required total contribution amount for the applicable year. The contributing entity must then submit the required payments to HHS within 30 days of notification.
Reinsurance contributions for 2014 may be due no earlier than December 30, 2014 and no later than January 14, 2015, based on when contributing entities receive notice from HHS of their required total contributions amount,. Because reinsurance fees are not immediately due, employers should begin discussing with their insurance providers or third-party administrators how they will estimate their plan specific contributions and what impact the reinsurance fees will have on their plan premiums or administration fees.
If you have questions about the reinsurance fees and/or how they will impact your group health plan, please contact the author of this article or the Trucker Huss attorney with whom you normally work.