Beginning in 2014, sponsors of self-insured group health plans (and insurers for insured group health plans) will be required to pay an annual fee to fund the Transitional Reinsurance Program under the Patient Protection and Affordable Care Act. The Department of Health and Human Services (HHS) recently proposed additional regulations for this program. Here is a quick overview of how the program will work under the proposed rules.
What is the Transition Reinsurance Program (TRP)?
The TRP is a temporary program that is intended to help stabilize health care premiums in the individual insurance market (both inside and outside the state exchanges) beginning in 2014. The aim of the TRP is to provide funding to those insurers that incur high claim costs during the initial period of the new health insurance market structure.
How is the TRP to be funded?
The TRP is to be funded by annual “contributions” to be paid by all health insurers and self insured group health plans. While insured group health plans are not directly liable for the contribution, it is likely that insurers will pass the fee on to employers through higher premiums.
How long will the program be in effect?
The TRP, which will be applied on a calendar year basis, will run from 2014 through 2016.
What is the amount of the annual TRP contribution?
The contribution will be based on an annual national per “covered life” rate to be determined by HHS. The Department estimates that the contribution for 2014 will $5.25 a month (or $63 for the year) for each “covered life” under the plan, with the required contribution for the following two years to be somewhat lower. While each state can also establish a separate additional TRP contribution, this state-level contribution cannot be imposed on self-insured plans. However, insurers will be obligated to pay any state TRP contribution for any insured group health plans (and will likely pass all or a portion of this required contribution as well on to employers maintaining insured plans).
Which group health plans are subject to the TRP?
In general, the contribution applies to all employer-sponsored arrangements providing major medical coverage, including stand-alone retiree health programs. Thus, it will not apply to healthcare flexible spending account arrangements, healthcare reimbursement arrangements that are integrated with a group health plan, health savings accounts and separate dental and vision programs. Employee assistance, disease management and wellness programs, stop loss/indemnity reinsurance, disability income insurance and coverage for on-site medical clinics are also excepted from the contribution requirement.
How are “covered lives” to be determined?
In general, “covered lives” will include all participating employees and their covered dependents. However, covered individuals for whom Medicare is primary are not counted. HHS guidance provides that “covered lives” can be determined in essentially the same manner as for determining the Comparative Effectiveness Research (CER) fee. (See July 10, 2012 Hunton Employment & Labor Perspectives (HELP) Blog for more information on the CER fee). There are three permitted methods, which will generally work as follows:
- The “actual count” method, under which the sum of covered lives for each day of the first nine months of the year is divided by the total number of days during that period to determine the number of covered lives;
- The “snap-shot” method, which uses the average number of covered lives on a specified date (or dates) each quarter during the first nine months of the year; and
- The “Form 5500” method (which can only be used for purely self-insured plans), under which the number of covered lives is determined by reference to the number of participants reported on the Form 5500 (if one is filed for the plan) for the last preceding plan year.
To avoid double counting and possible manipulation, a plan sponsor must generally treat all of its covered programs as one plan.
How/when must the annual contribution be paid?
HHS currently proposes to handle the reporting/payment process as follows: The responsible entity must report its annual “covered lives” count to HHS by November 15th of the year involved (e.g., 11/15/2014 for 2014). HHS will notify the entity thereafter of the TRP contribution owing, which it will be obligated to pay within 30 days of the notice.
Note that the Department of Labor has advised that these contributions can (for funded plans) be paid from plan assets and the Internal Revenue Service has stated that such a contribution is tax deductible to the extent paid by the employer.