Accounting for ACA Transitional Reinsurance FeeBondBeebe
As Plan Administrators and Controllers consider closing the accounting records for 2014, keep in mind the Transitional Reinsurance Program that went into effect January 1, 2014. This is an annual fee for virtually all health plans calculated on a per participant basis that is due to the government to stabilize premiums under the Affordable Care Act. So, all Plans will need to account for the fee in 2014.
Per generally accepted accounting principles (GAAP), this is a calendar year fee and, contrary to most GAAP, the entire year’s liability should be recognized on the first day of the year that benefits are provided. So, essentially, all Plans should recognize the entire liability for the calendar year on or shortly after January 1 of that year. When the entire liability is booked, the offsetting entry is to a Deferred Charge (an asset). The liability goes away when the fee is paid and the Deferred Charge is amortized ratably over the 12 months of the year. In a normal year, the fee will be due and payable in September. Prior to September, Plan management is supposed to enter the appropriate data into a government website. That website will auto-compute the fee for the Plan.
So, in a normal year, at June 30, Plans should show a liability for the entire year’s fee, a deferred charge equal to 50% of the fee and an expense equal to 50% of the fee. At September 30, the plan would show a deferred charge equal to 25% of the fee and an expense equal to 75% of the fee. There would be no liability, because the fee has been paid. At December 31, it is really simple: There is no liability and no deferred charge, just 100% of the fee charged to expense. Again, this would be the case in the “normal” year.
This kicked in for 2014, and 2014 is not a “normal” year. The government has had trouble implementing the necessary forms and procedures so they extended the deadlines. For 2014, Plans had until December 5 to enter data onto the website. There were two payment options:
- The Plan may pay 100% of the amount due for the 2014 calendar year by January 15, 2015; or
- The Plan may pay the 2014 fee in two installments, one (for roughly 83% of the amount) by January 15, 2015, and the balance (of roughly 17%) by November 15, 2015.
If the Plan chooses option 2, at September 30, 2014 the Plan should show the entire year’s liability, 25% as a deferred charge and 75% as an expense. At December 31, 2014, the plan will show 100% of the liability, no deferred charge and 100% of the fee as expense.
Please note that GAAP is specific in that this fee will be presented as an administrative fee, and should not be classified as part of benefits.
If you have questions about the transitional reinsurance fee, or its reporting and payment requirements, or accounting, please don’t hesitate to give us a call. We will be happy answer questions and assist in your compliance.