Health Care Reform: Details Regarding Significant New Fee Payable by Health Plan Sponsors Beginning in 2014
December 19, 2012
Although it has not been well publicized, a significant new fee on sponsors of group health plans is scheduled to go into effect in 2014 under the Patient Protection and Affordable Care Act (“Affordable Care Act”). Earlier this month, the Department of Health and Human Services (HHS) issued proposed regulations that provide more clarity on the amount of the fee, who is required to pay it, and other details. The two most important details to emerge from this recent guidance are (1) that the proposed amount of the fee is $63 per covered life in 2014, and (2) that the fee must be paid by self-insured health plans (in addition to insured plans). For a large employer that has tens of thousands of covered lives in its group health plans, the annual fee amount will be in the seven figures.
The new fee is being levied by HHS under the Affordable Care Act’s “transitional reinsurance program,” and the fee is expected to be in place from 2014-2016. The total amount that HHS will seek to collect during this period is $25 billion. Most of this will be redistributed to insurance companies to subsidize the now-mandated coverage of high-risk individuals. A small portion will also go to the U.S. Treasury to pay for the Early Retiree Reinsurance Program (known as “ERRP”), a program that is no longer providing benefits.
The recent proposed regulations from HHS, along with other guidance that has been issued by the IRS and DOL, clarify a number of important issues:
- Amount of Fee: The amount of the fee for 2014 has been proposed at $63 per covered life per year, although this is not final. HHS will finalize this number sometime in 2014, and the amount may increase. The amount of the fee for 2015 and 2016 will be set later.
- Who is Required to Pay: All self-insured and insured group health plans that provide “major medical coverage” must pay the fee. Stand-alone vision and dental plans and health FSAs are exempt. For insured plans and self-insured plans that use a third party administrator, the insurer/third party administrator will be responsible for reporting and coordinating with HHS, although the cost of the fee will in all likelihood be passed through to the plan sponsor. If a self-insured plan does not use a third party administrator, the plan sponsor is directly responsible for reporting and paying the fee to HHS.
- Counting Covered Lives: There are a number of permissible methods for counting the number of covered lives in a plan. Options include using the average actual number of covered lives throughout the year, using the average number of covered lives on a series of “snapshot” dates throughout the year, and using data from the plan’s Form 5500.
- Plans Where Medicare is Primary Payer: The fee is not payable for any participants whose plan coverage is secondary to Medicare (as is the case in many retiree plans).
- Use of Plan Assets to Pay Fee: The DOL has indicated that the fee can be paid from plan assets. This is not true for certain other fees that plan sponsors must also pay under the Affordable Care Act, such as the much smaller “PCORI” fee that goes into effect in 2013.
- Deductibility of Fee: The IRS has confirmed that the fee is fully tax-deductible by the plan sponsor.
This reinsurance fee will come as a surprise for many plan sponsors. But it is important to keep in mind that there are ways to build the fee into the plan’s total cost so that participants share in the financial responsibility for the fee. Plan sponsors should start considering these options now so that any necessary revisions to participant contribution obligations are in place by 2014.