A provision in the Patient Protection and Affordable Care Act (PPACA) that establishes a reinsurance program for health insurance plans in the state health care Exchanges is expected to have a financial impact on employer health care costs. by Robert Fiorito
This new health reform fee is often called the reinsurance fee. This year, the federal government will assess a $63 fee ($5.25 per month) per covered life based on group health plan participation. Although carriers and third party administrators will pay the assessment directly to the agency on behalf of the plan, the final cost will be passed through to employers sponsoring health plans. In 2014, the federal government will assess a $63 fee ($5.25 per month) per covered life based on group health plan participation.
In 2015, the annual contribution rate will drop to $44 per covered life per year. Although the slightly lower fee is welcome news, other sources have estimated a need for higher payments due to adverse selection against the carriers in the individual and small group markets. The U.S. Department of Health & Human Services (HHS) also announced that they are lowering the attachment point at which carriers who incur claims could be eligible for payment through the reinsurance fund. That adjustment is also anticipated to drive pressure for higher future fees. The total amount of fees expected to be collected over the three-year period is $25 billion. Of that amount, approximately $20 billion will fund the reinsurance program, while the remaining $5 billion is to be paid to the U.S. Treasury.
HHS has published proposed regulations that would modify the transitional reinsurance program established under the Patient Protection and Affordable Care Act (PPACA).
The new guidance also addresses other key health care reform provisions, many of which govern health coverage obtained through the Exchange/Marketplace system.
Key Changes Include Reinsurance Program
Starting next year and planned for assessments through 2016, group health plans (whether insured or self funded) must make contributions to a “reinsurance program.” The funds are intended to help stabilize premiums for coverage obtained through the Exchange. The new guidance announces planned assessment fees and revises the definitions controlling affected groups with the changes generally taking effect in 2015.
This year’s initial enrollment for the public exchange runs for a full six month period. The next annual enrollment period for coverage purchased through an Exchange is considerably different. The new guidance specifies that the public exchange enrollment cycle will run from November 15, 2014 to January 15, 2015, and coverage would have to be effective January 1, 2015 for applications received by December 15, 2014. Individuals already enrolled in a “qualified health plan” would have until January 15, 2015 to switch their coverage.
When a small-group insurer offers an aggregated average premium based on a target group’s composition, the insurer must lock into that same composite premium for all new enrollees during the year. The carrier is thereby precluded from adjusting premium based on mid-year enrollment changes. This rule means small employers will be better able to set employee premiums once a year without concern for off-renewal adjustments of employee cost sharing and without concern for whether the employer would have been on the hook for any cost fluctuations.
Strategic planning for health reform is fast becoming more imperative than ever. Specific actions must be taken to help address the financial impact of fees like the one described in this article, as well as to adapt to the other new announcements. Consult with your broker to review your particular circumstances and decide on the optimal financial and compliance strategy.
Robert Fiorito, serves as Vice President, Hub International Northeast, where he specializes in providing insurance brokerage services to the restaurant industry. As a 20-year veteran and former restaurateur himself, Bob has worked with a wide array of restaurant and food service businesses, ranging from fast-food chains to upscale, “white tablecloth” dining establishments. For more information, please visit www.hubfiorito.com.