By now, most plan sponsors have probably managed to pick themselves up off the floor after hearing about the $63/year/covered life transitional reinsurance fee that they will either pay (if self-funded) or have passed on to them (if they are insured). We were on top of this months ago, and the most recent guidance from a couple of weeks ago doesn’t change the landscape too much, but there are a few items to note:
- The fee is based on the anticipated need to collect $10 billion from health plans in 2014. Under current law, that number will go down to $6 billion in 2015 and $4 billion in 2016. Presumably, the fees will also go down in those years. The “need” arises in order to subsidize health insurance coverage for those unable to afford it.
- Retiree plans are subject to the fee. However, CMS proposed that all plans (retiree or not) only need to pay for enrollees for which the plan is primary to Medicare as, of course, most are. No reinsurance fee is due with respect to participants for whom Medicare is primary.
- The good news is that the IRS has confirmed already that the fee is deductible, and it reports that the DOL has advised the IRS that the fee is a permissible plan expense.
- States can set up “supplemental” reinsurance programs and charge separate fees, but these fees may not be levied against self-funded plans.
- As with the health exchanges, states can choose whether to operate their own reinsurance programs or have HHS operate them. However, the rate of fees will be a nationally-determined rate with nationally-determined levels of reimbursements for health insurance issuers. It seems that if the rate is nationally determined, and the reimbursements are nationally determined, then a state has little incentive to set up its own program (unless it intends to collect supplemental contributions).
- As with the early retiree reinsurance program that was initially adopted as part of PPACA, there will be a reimbursement of claims floor and ceiling to issuers. For 2014, the reimbursements will start at $60,000 in claims and stop at $250,000 in claims. If the experience with the early retiree reinsurance program is a guide, it may take more than the $10 billion HHS is budgeting to pay these claims.
- Fees collected will be dispersed based on need, rather than based on the states from which they were collected.