HRB 61 - 1) Premium Stabilization Program Proposals and 2) Chart of Health Plan Fees and Taxes
Released December 18, 2013I Download as a PDF
On December 7, 2012, the Department of Health and Human Services issued proposed regulations relating to several aspects of the Affordable Care Act (ACA). These proposals make clarifications to premium stabilization programs and their effect on the minimum loss ratio rules, to standards relating to federally facilitated SHOP exchanges, and to standards relating to advance payments of premium tax credits and cost sharing reductions. Comments on these regulations must be received by December 31, 2012. Below are highlights of these proposals:
Health Insurance Premium Stabilization Program
The three components of ACA’s premium stabilization program, known as transitional reinsurance, risk corridors, and risk adjustment are intended to protect against adverse selection of newly enrolled populations in the exchange and to, in effect, level the playing field to accommodate higher risks.
Transitional Reinsurance Pool
The goal of a transitional reinsurance program is to stabilize premiums in the individual market due to anticipated immediate enrollment of higher risk individuals beginning in 2014. The reinsurance money will be used to offset the expenses of the newly eligible individuals.
States that operate an Exchange are required to establish a transitional reinsurance pool, to be in effect for 3 years (2014 through 2016). In the absence of a State establishing a reinsurance pool, the federal government will do so. All insurers, and third party administrators on behalf of self-funded plans, are required to contribute to this reinsurance pool. The total contribution amounts to be collected from ‘contributing entities’ is estimated to be $10 billion in 2014, $6 billion in 2015, and $4 billion in 2016. Monies collected will be diverted into the reinsurance pool, the US Treasury, and to pay for administrative expenses associated with the collection of fees.
Plans Subject to the Fees
Virtually, all sized health plans, whether insured or self-funded are subject to the fees. This includes plans sponsored by single employers, as well as multiple employer plans and multi-employer plans.
Certain account-based plans are not required to make reinsurance contributions, including health reimbursement arrangements that are integrated with comprehensive group coverage and flexible medical spending account plans. Health savings accounts (HSA) are excluded; however, a high deductible health plan used in conjunction with the HSA is considered major medical insurance and thus, subject to reinsurance contributions.
Employee assistance plans, disease management programs, and wellness programs are generally not subject to reinsurance contributions if the program does not provide significant benefits in the nature of medical care or treatment.
Determining Contribution Amount
The contribution amount is calculated by multiplying the average number of covered lives during the applicable year for all plans and coverage by the contribution rate (as determined by HHS) for the applicable year. HHS estimates the 2014 contribution rate to be $5.25 per covered life per month, or approximately $63, annually.
Counting Covered Lives
The regulations outline procedures for counting covered lives in insured and self-funded group health plans, as well as multiple plans sponsored by the same plan sponsor, and multiple plans that are treated as single employer plans. These counting procedures are similar, but differ, to those used in calculating Patient Outcome Research Fees (see CBIZ Health Bulletin, Final Regulations Issued: Patient-Centered Outcomes Research Fees).
Insured plans must use one of the following methods for determining the average number of covered lives under the plan:
- Method 1. Add the total number of covered individuals on each day of the first 9 months of the benefit year and divide that total by the number of days in the first 9 months;
- Method 2. Add the total number of covered individuals on any date during the same corresponding month in each of the first three quarters of the benefit year, and divide that total by the number of dates on which a count was made. The same months must be used for each quarter (for example January, April and July) and the date used for the second and third quarter must fall within the same week of the quarter as the corresponding date used for the first quarter; or
- Method 3. Multiply the average number of policies in effect for the first nine months of the benefit year by the ratio of covered individuals per policy in effect. The calculation is derived by data the insurer annually files with its relevant state licensure department, such as a state insurance department.
Plan sponsors of self-funded plans have several options for counting covered lives under the plan. It can choose Method 1 or 2, as above; or one of the following methods:
- Add the total number of covered lives on any date during the same corresponding month in each of the first three quarters of the benefit year, and then divide the total by the number of dates on which a count was made. However, the count on a particular date is further differentiated by adding those with self-only coverage to those with non-self-only coverage and a factor of 2.35 (this number can be used to account for covered lives which is useful particularly in the instance that the employer doesn’t have information on covered dependents). The same months must be used for each quarter (for example, January, April, and July); or
- A Form 5500 method which is based on the average number of covered participants at the beginning and end of the plan year, as reported on the relevant Form 5500 for the applicable plan year.
To determine the number of covered lives of reinsurance contribution enrollees under a group health plan with a self-insured coverage option and an insured coverage option for a benefit year, a plan must use one either Method 1 or 2, as described above.
Annual Enrollment Count, Notification and Payment of Reinsurance Contributions
An insurer or plan sponsor, through its third party administrator (TPA), is required to submit an annual enrollment count of the average number of covered lives to HHS by November 15th of each year. HHS will then notify the insurer or plan sponsor/TPA of its contribution amount no later than December 15th of the reporting year. The insurer or plan sponsor/TPA must then remit payment to HHS within 30 days of receiving the HHS notification of the amount due.
Unlike the Patient-Centered Outcome Research Fees (see CBIZ Health Reform Bulletin, Final Regulations Issued: Patient-Centered Outcomes Research Fees), so far it appears that the Department of Labor does consider the transitional reinsurance fee contributions a permissible plan expense.
In related guidance, the IRS has indicated that contributions made under the reinsurance programs by insurers and sponsors of self-funded group health plans are generally deductible as ordinary and necessary expenses, subject to any applicable disallowances or limitations under the Code (see ACA Section 1341 Transitional Reinsurance Program FAQs).
Effect of Premium Stabilization on Minimum Loss Ratio Rules
The proposed regulations make several changes in the medical loss ratio (MLR) rules as it relates to insurer reporting of earned premium and MLR rebates. Of particular note relating to rebates:
- For purposes of calculating MLR rebates, insurers are permitted to deduct certain federal and state taxes, as well as licensing and regulatory fees. The proposed regulations also permit insurers to adjust rebate amounts as a result of payments or receipts for risk adjustment, risk corridors and reinsurance programs.
- For the 2011 through 2013 reporting years, insurers must provide MLR rebates to enrollees no later than August 1st (beginning in 2014, by September 30th) following the end of the relevant MLR reporting year.
Temporary Risk Corridor Program
Qualified health plan (QHP) issuers are required to establish and administer a temporary risk corridor program for a 3-year period from 2014 through 2016. QHP issuers will receive payment from HHS in certain circumstances when a QHP’s allowable costs for any benefit year exceed the target amount. The proposed regulations permit QHPs to include profits and taxes within its risk corridors calculations. This program is intended to protect QHP issuers in the individual and small group market against inaccurate rate setting and uncertainty in the Exchange by limiting the extent of issuer losses and gains.
Permanent Risk Adjustment Program
An on-going permanent risk adjustment program is intended to provide adequate payments and reduce risk premium to health insurance issuers that attract high-risk populations, such as individuals with chronic conditions; as well as stabilize premiums in the individual and small group markets once the ACA’s insurance market reforms are implemented. The proposed regulations establish the criteria and methodology to be used by States in determining the actuarial risk of plans within a State that are offered both inside and outside of the Exchange.
Beginning in 2014, qualified small employers will be able to provide their employees and their dependents with access to one or more QHPs through a Small Business Health Options Program (SHOP) exchange. The proposed regulations clarify certain standards and processes for implementing SHOP exchanges, as follows:
- For SHOP purposes, a small employer is one who employs between 1 and 100 employees on business days during the preceding calendar year and who employs at least one employee on the first day of the plan year. For plan years beginning before January 1, 2016, a state may elect to define a small employer by substituting 50 employees for 100 employees. The regulations clarify that solely for purposes of determining employer size, an employer must also include, in addition to its full-time employees for any month, the number of full-time equivalent employees, determined by dividing the aggregate number of hours of service of employees who are not full-time employees for the month, by 120.
- For plan years beginning prior to January 1, 2016, states may elect to define a small employer as one with 1-50 employees; a large employer as one with 51 or more employees. This criteria applies to federally-operated SHOP exchanges for plan years beginning October 1, 2013.
- The proposed regulations set forth certain standards for minimum participation and minimum contribution in QHPs offered through a federally-facilitated SHOP. Specifically, unless otherwise provided by state insurance law, the regulations impose a 70% minimum participation standard based on the number of qualified employees accepting coverage under the employer’s group health plan, divided by the number of employees enrolled in other coverage. SHOPs can choose one of several methods for determining minimum contribution levels based on QHP design.
Chart of ACA Imposed Health Plan Fees and Taxes
The ACA imposes many taxes, fees and other assessments. The PDF link of this article shows a chart which reflects a summary of these costs specifically assessed on health plans and plan sponsors. Some of the information in the chart is based on proposed guidance and subject to change. In certain instances, no guidance has been issued.
About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Leawood, Kansas office.
The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein. As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.