What Self-Funded Group Health Plans Should Know About Transitional Reinsurance

If you have a self-insured group health plan, you should care about the Affordable Care Act’s Transitional Reinsurance Program because you will help to fund it. Your plan will submit “contributions” for plan years beginning in the 3-year period starting January 1, 2014, to the Department of Health and Human Services.

This temporary program is tied to the start of the prohibition on preexisting condition exclusions for adults and other insurance market reforms implemented by the Affordable Care Act. Its purpose is to avoid large increases in premiums in the insurance market while people with high-risk medical conditions are integrated into that market. The payments will go to applicable reinsurance entities, tax-exempt not-for-profit entities that carry out reinsurance functions on behalf of the state, which disburse the funds to requesting non-grandfathered individual market plans that submit reinsurance contributions.

Your plan can pay the fee directly to HHS or through its third-party administrator. Health insurance issuers also must pay the fee.

The payment due is calculated by multiplying the contribution rate for the year by the number of covered lives of enrollees during the year for arrangements that provide major medical coverage. Arrangements excluded from the calculation include health reimbursement arrangements (HRAs) that are integrated with the plan, health savings accounts (HSAs), health flexible spending arrangements (FSAs), prescription drug benefit-only plans, and expatriate plans. Your plan may determine the number of covered lives using an actual count method, an authorized snapshot method, or a Form 5500 method.

Your plan must submit its first annual enrollment counts to HHS by November 15, 2014. HHS will notify your plan of the required contribution within 30 days or by December 15, whichever is later. The plan will have 30 days to remit the fee. The estimated fee for each enrollee for 2014 is $63 ($5.25 per month). The IRS has indicated that the payment is a permissible plan expense under ERISA and is deductible as a business expense.

States that elect to operate the program, instead of having the program run by HHS, may charge an additional fee to further fund the program or to cover administrative expenses of the applicable reinsurance entity. According to HHS guidance, only Connecticut and Maryland opted to run their own programs. Neither state will charge additional fees for 2014.

Have you included this fee in your planning for 2014?

-Nadia Masri
Editor (Compensation Planning)