HHS Issues Proposed Rules for Transitional Reinsurance Program

The Department of Health and Human Services (HHS) released a proposed regulation concerning certain benefit and payment parameters for the Insurance Exchanges starting 2014. With respect to group health plans, the pertinent part of the proposed regulation describes how contributions will be determined and collected for the transitional reinsurance program which is intended to help the Exchanges with higher cost claims initially.

Action Needed Now: Plan sponsors should carefully review the proposed regulations and decide if they want to submit comments, which are due by December 31, 2012.

Cheiron Observation: These reinsurance contributions are in addition to the fees to fund the Patient-Centered Outcome Research Institute (PCORI). See our separate Alert dated May 15, 2012.

Background and Overview

The Transitional Reinsurance Program was created by Section 1341 of the Affordable Care Act (ACA) to stabilize premiums for coverage in the individual market from 2014 through 2016. The reinsurance program itself is designed to alleviate the need to build into the Exchanges? premiums the risk of enrolling individuals with significant unmet medical needs. The transitional reinsurance program is funded by contributions from insurers and group health plans (referred to in the proposed regulations as ?contributing entities?).

Amount and Time for Payment

HHS has determined that they need to raise the following amounts over the three years (in billions):

Year Reinsurance U.S. Treasury
for ERRP
2014 $10 $2 .02 $12.02
2015 $ 6 $2 .02 $ 8.02
2016 $ 4 $1 .02 $ 5.02

HHS determines the Transitional Reinsurance Program fee by taking the Total Amount and dividing by the number of enrollees in plans nationwide.

For 2014, HHS requested comments about the idea of deferring the $2 billion for the US Treasury to 2016 (which would still total $5 billion over 3 years to cover the Early Retiree Reimbursement Program (ERRP) expenditure).

Each contributing entity would report the number of enrollees no later than November 15, 2014 (or 2015, or 2016, for those years), and then HHS would notify the entity within 30 days (but not later than December 15) of the reinsurance contributions to be made. An entity would have to pay the amount within 30 days of notification.

For 2014, HHS estimates that the national per capita rate would be $5.25 a month or $63 annually, which would mean that each entity would have to pay $63 multiplied by the average number of covered lives. Note that the payments to HHS would only be made once a year. Also, a State may elect to collect additional, supplemental contributions (using a State rate).

Contributing Entities

In general, a contributing entity is a health insurance issuer or a self-insured group health plan that provides major medical coverage. Accordingly, the contribution to the reinsurance fund is only with respect to health coverage that is not limited scope coverage, or that is not subject to PHSA section 2711. An HRA that is integrated with a group health plan providing medical coverage is excluded from reinsurance contributions, but the group health plan will make the contributions. Retiree plans would have to make reinsurance contributions on enrollees for which Medicare is not the primary payer.

The following arrangements are excluded from the requirement to make the reinsurance contributions because they are not considered to provide major medical coverage:

  • - Health FSAs (due to the $2,500 limit)
  • - Employee assistance programs
  • - Disease management programs
  • - Wellness programs
  • - Health Savings Accounts (HSAs)
  • - Stop-loss and indemnity reinsurance policies

Cheiron Observation: It appears that an HRA that is not integrated with a group health plan would have to separately make reinsurance contributions.

Determining Number of Enrollees

The proposed regulation provides alternative methods to determine the average number of enrollees (including dependents), also referred to as covered lives. The methods mirror the methods that will be used to determine the average number of covered lives for purposes of the PCORI fees. However, unlike PCORI, covered lives that have Medicare as their primary coverage appear to be excluded from these counts.

What Should Plan Sponsors Do Immediately

Plan sponsors should review the proposed regulation and decide what, if any comments, they may want to make.

Cheiron consultants can assist in reviewing the effect of the regulation if adopted as proposed.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Therefore, we do not provide legal services or tax advice.