Released March 12, 2013I Download as a PDF

Premium Stabilization Program

Beginning in 2014, everyone legally present in this country must maintain a minimum level of coverage or pay a tax, with but few exceptions.  It is anticipated that due to this requirement, there will be an influx of covered lives in the insurance marketplace.  To this end, the law attempts to stabilize the marketplace by spreading the risk more broadly across all insurers; the premise, of course, is to ensure that not all of the burden of high risk falls in a limited segment of the market. 

There are three components to the Premium Stabilization Program:

1. A transitional reinsurance program to stabilize premiums in the individual market due to anticipated immediate enrollment of higher risk individuals beginning in 2014;
2. A temporary risk corridor program to protect qualified health plan (QHP) issuers in the individual and small group market against inaccurate rate setting and uncertainty in the exchange/marketplace by limiting the extent of issuer losses and gains; and
3. A permanent risk adjustment program 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.

Transitional Reinsurance Program

The rules relating to the transitional reinsurance program have particular bearing on employers, in that the cost is likely to be borne by employers.  The 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 the 3-year period of 2014 through 2016.  In the absence of a state establishing a reinsurance pool, the federal government will do so. 

Both insured plans, through their insurers, and self-funded plans must contribute to the reinsurance pool.  These final regulations, in large part, follow the proposed regulations as described in Premium Stabilization Program Proposals (CBIZ Health Reform Bulletin, 12/18/12). 

For a self-funded plan, the contributing entity is the plan sponsor/employer.  The plan can contract with a third party administrator (TPA) to calculate the premium and even to submit the payment, but ultimately it is the plan/employer who is responsible for funding it.  The administrative services agreement with TPAs should be reviewed and updated if these services are to be included.

Plans Subject to the Fee

Generally, the reinsurance fee applies to all major medical coverage. These final regulations affirm that it applies to insured and self-funded plans, including a self-funded multiple employer welfare arrangement and COBRA coverage.  It does apply to retiree-only coverage to the extent that the retiree plan is primary to Medicare.  If Medicare is primary to the retiree plan, the fee will not apply. 

Plans to which the fee does not apply include:

• Limited scope dental and vision plans;
• Expatriate coverage;
• Health savings accounts (investment account);
• Medical flexible spending account (FSA);
• Integrated health reimbursement arrangement (HRA);
• Employee assistance programs;
• Disease management programs;
• Wellness plans;
• Stop loss insurance;
• Indemnity coverage;
• Indian tribal coverage (however, coverage provided through a commercial venture, such as a casino, would be subject to the fee), and
• TRICARE.

Counting Covered Lives in Fully Insured Plans

The regulations affirm that the fee can be paid from plan assets.  It is a deductible expense and not an excise tax.  The fee is calculated on a calendar year basis, and is based on the first 9 months of the year.  The fee is based on the number of covered lives under the plan.  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.

Counting Covered Lives in Self-Funded Plans

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. 

An insurer, or plan sponsor through its 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.

Changes to Minimum Loss Ratio Rules

The ACA’s minimum loss ratio (MLR) rules require insured plans to use a certain amount of premium dollars to pay claims, or they must rebate the excess monies to the policy holders (see CBIZ Health Reform Bulletin, Medical Loss Ratio Rebates, 7/10/12).  These regulations make small modifications to the MLR calculation, primarily to account for the premium stabilization rules described above.  Beginning with the rebate due in 2014, based on the 2013 reporting year, the date the rebate is required to be paid is moved from August 1st to September 30th of each year.

Federal Exchange User Fees

One of the methodologies for expanding access to health coverage is through the establishment of state-based exchanges (“marketplaces”).  The states have had the opportunity to establish their own exchange or to engage in a state/federal partnership.  In the event that a state does not establish an exchange, a federal exchange will be available in that state.  There are, at the time of this publication, 26 states in which the federal exchange will be implemented.  These regulations impose a monthly user fee of 3.5% of premium spread across all health insurance products offered in the state to help fund the federal exchange. 

The state exchange/marketplace is available to individuals.  In addition, small employers can purchase health coverage through a Small Employer Health Options Program (SHOP) offered through the exchange.  Initially, a small employer is defined in accordance with the state definition of small employer health insurance plan.  Beginning in 2016, small employer will be defined as an employer employing fewer than 100 employees.  These regulations clarify that for purposes of counting employees, the employer counts full-time employees, defined as those working 30 or more hours per week, as well as full-time equivalent employees.  Full-time equivalencies are calculated by adding up part-time hours to equate to full-time, in the same manner as these terms are defined in this Shared Responsibility Guidance (CBIZ Health Reform  Bulletin, 1/9/13).  However, until the federal definition is used in 2016, the state can continue using whatever counting methodology it currently uses for purposes of determining small employer health insurance. 

In addition, these regulations provide special enrollment events, available to individuals participating through the SHOP exchange, and are aligned with the Health Insurance Portability and Privacy Act (HIPAA) special enrollment events.  Generally, a HIPAA special enrollment event includes marriage, birth or adoption, loss of coverage due to termination of employment, death and divorce.  The HIPAA special enrollment election period for the SHOP exchange is 30 days, or 60 days for special enrollment due to loss of Medicaid eligibility or becoming eligible for premium assistance through Medicaid or the Children’s Health Insurance Program.

Advance Premium Tax Credit and Cost-Sharing Methodologies

These regulations provide guidance to insurers on the advance premium tax credit and the cost sharing available to certain lower income individuals.  Generally, an individual who falls between 100% and 400% of the federal poverty level may be entitled to an advance tax credit, which will be paid directly to a qualified health plan.  In addition, certain individuals are entitled to coverage of certain health costs.  These rules, generally, will not impact employers, though, the regulations do affirm that if an individual is eligible for adequate coverage at an affordable rate through his/her employer, the individual will not be eligible to receive the premium assistance or cost share.

Marketplace/Exchange Options for Small Businesses

The Small Business Health Options Program (SHOP) is designed to help qualified small employers in providing health insurance options for their employees.  The proposed rule would require SHOPs to provide qualified employers the option to offer qualified employees a choice of any qualified health plan (QHP) at a single metal level starting with plan years beginning on or after January 1, 2015.  For plan years beginning in calendar year 2014, qualified employers would offer qualified employees coverage under a single QHP in federally-facilitated SHOP, and state-based SHOPs would have the flexibility to offer either employer or employee choice in 2014.

Multi-State Plan Program (MSPP)

The ACA directs the Office of Personnel Management (OPM) to establish a Multi-State Plan Program (MSPP).   The goal of this Program is to foster competition among plans competing in the individual and small group markets on the exchange.   This MSPP option may be attractive to small employers who have locations in more than one state.

On March 11, 2013, OPM issued final regulations setting forth the criteria and implementation of this Program. OPM will contract with participating insurers who offer at least two multi-state plans, including one sponsored by a non-profit entity, through the exchange.  The rules provide for a 4-year phase-in period for contracted insurers to make coverage available in all states.  The first option should be available beginning in October 2013, for a January 2014 effective date

Applicability of ACA to Expatriate Group Health Coverage

The Department of Labor’s Employee Benefit Security Administration (EBSA) has issued an FAQ providing for temporary transitional compliance relief specific to expatriate plans.  This guidance provides that, at least for plans ending prior to December 31, 2015, expatriate plans will not be required to comply with subtitles A and C of Title I of the ACA.  These subtitles address many of the insurance market-type reforms, such as extension of dependent age, prohibition of imposing annual and lifetime limits and preexisting condition exclusions, prohibition of plan rescission, coverage for preventive services, as well as certain reporting and disclosure obligations, such as the summary of benefits and coverage.  What this means is that as long as the plan was in compliance with the federal laws governing plan compliance prior to the enactment of ACA, such as federal mental health parity provisions, the ERISA claims and appeal procedures, the HIPAA non-discrimination provisions, and any reporting and disclosure obligations under ERISA, then the plan could be eligible for certain transitional relief in complying with the ACA.  Note, however, this exemption only applies to insured group health plans covering primary insureds and their covered dependents who live outside the United States for at least 6 months of the year.  This leaves open questions about the applicability of many of the provisions to self-funded expatriate plans.

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.