ACA Update: Transitional Reinsurance Program FeeBondBeebe
One of the many provisions of the Affordable Care Act is the Transitional Reinsurance Program (TRP). The program is an attempt to stabilize health insurance premiums in the individual market place. Many insurers are concerned that the influx of new enrollees will have higher than average claim costs. In order to smooth negative experience and maintain reasonable premium rates, this program provides reinsurance to health plans that cover high cost enrollees. The program is in effect for a transitional period of 2014-2016.
Transitional Reinsurance Program Fee and Exemptions
The TRP will be funded by a reinsurance fee imposed on all insurers, including self-insured group plans, regardless of whether the health plan participates in the individual markets. There are very limited exemptions to the types of plans or benefits that are excluded from the program. Exemptions include dental- and vision- only plans, employee assistance programs, flexible spending accounts, Medicaid and Medicare and prescription drug plans.
The tax is calculated based on the average number of covered lives, which includes all individuals covered by a plan – employee, spouse, children, domestic partners, etc. The Department of Health and Human Services (HHS) has established an initial fee of $63 per enrollee for 2014. Membership counts will be due to HHS in November 2014, with payment due in January 2015. HHS has set 2014 rates in order to fund $12 billion in the initial year. Funding thresholds reduce for 2015 and 2016 and rates will be established as necessary to meet those funding thresholds; the goal is that the fees will decrease.
The IRS has indicated that reinsurance program fees can be treated as ordinary and necessary business expenses and are tax-deductible. Additional details are available at this IRS FAQ page.
Qualified insurers in the individual marketplace will be able to request reimbursement for high cost cases that accumulate claims over a specified amount ($60,000) up to a reinsurance cap ($250,000). These amounts may be adjusted in future years.
TRP in Effect for 2014
The Senate bill to re-open the federal government and raise the debt ceiling contained a provision that would have delayed the transitional reinsurance tax by one year. Under that provision, the tax would have been collected for 2015-2017. However, there was to be no corresponding delay in reimbursement, which would have been provided by general funds. The final bill, passed on October 17, 2013, did not contain any such provision; for now, the transitional reinsurance program remains intact and in effect for 2014.
A final rule was released on October 30, 2013 by HHS and the Centers for Medicare & Medicaid Services. Buried in this rule is a disclosure that the administration intends “to propose in future rulemaking to exempt certain self-insured, self-administered plans from the requirement to make reinsurance contributions for the 2015 and 2016 benefit years.” This would benefit certain Taft-Hartley benefit plans, as well as other self-insured, self-administered funds. Keep reading this blog for ongoing updates on the ACA provisions.