The transitional reinsurance program was implemented to stabilize premiums in the individual market due to anticipated enrollment of higher risk individuals in the Health Insurance Marketplace when it opened in 2014. The fees collected are also intended to reimburse the U.S. Treasury for the $5 billion that was spent on the early retiree reinsurance program that began in 2010.
For 2014, the contribution rate is $63 per covered life per year. Final regulations have split this fee into two payments – one for each of the reimbursement programs. The contribution rate for 2015 is $44 per covered life and the contribution rate for the final year of the program has not yet been announced. Self-funded, self-administered plans are exempt from the transitional reinsurance fee for the 2015 and 2016 reporting years.
What Benefits are Subject to the Fee?
The transitional reinsurance fee applies to the following benefits:
- Major medical coverage, including any High Deductible Health Plan (HDHP) that is connected to a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA)
- COBRA coverage
What Benefits are Not Subject to the Fee?
The transitional reinsurance fee does not apply to the following benefits:
- HRA that is integrated with a self-funded plan or insured coverage
- Health Savings Account (HSA) or Health FSA
- Employee Assistance Program (EAP), disease-management program, or wellness program
- Stop-loss or indemnity reinsurance policy
- Self-funded Group Health Plan or insurance coverage that consists solely of benefits for prescription drugs
- Retiree coverage
Who Pays the Fee?
Carriers are required to pay the fee on behalf of any insured plan and employers are required to pay the fee for their self-funded major medical plans.
How do Employers Determine the Amount of the Fee?
The reinsurance fee is based on the number of covered lives (including dependents) under a plan, multiplied by the contribution rate. The methods for determining the amount of covered lives under a plan are the same as those used to determine the PCORI fee:
- Actual Count Method: Add the total number of lives covered by the plan in each day of the first nine months of the calendar year and divide that total by the number of days in those nine months.
- Snapshot Count Method: Add the totals of lives covered on date(s) during the corresponding month in each of the first three quarters of the year (the dates used for the second and third quarters must be within the same week of the quarter as the date used for the first quarter), and divide that total by the number of dates on which a count was made.
- Snapshot Factor Method: Add the totals of lives covered on date(s) during the corresponding month in each quarter, and dividing that total by the number of dates on which a count was made. For this method, the number of lives covered on a date is calculated by adding the number of participants with self-only coverage on the date to the product of the number of participants with coverage other than self-only coverage on the date multiplied by 2.35. As with the snapshot count method, the dates used for the second and third quarters must be within the same week of the quarter as the date used for the first quarter.
- Form 5500 Method: Calculate the number of lives covered for a plan that offers only self-only coverage by adding the total participants covered at the beginning and end of the benefit year, as reported on the Form 5500, and dividing by two. Additionally, a self-insured group plan that offers self-only coverage and coverage other than self-only coverage may calculate the number of lives covered by adding the total participants covered at the beginning and the end of the benefit year, as reported on the Form 5500.
How do Employers Pay the Fee?
Employers will pay the Transitional Reinsurance Fee by registering on www.Pay.gov between October 24, 2014 and November 15, 2014. The following information is needed for the registration and payment:
- Contact name and email
- Legal business name
- Billing address (not PO Box)
- Average number of covered lives
- Banking information (Employers will need to provide the ALC+2 number for CMS to their bank. This number is 7505008015.
- Authorizing official information
In addition, the employer will need to upload a supporting documentation file that includes the above information along with an indication of whether the employer is a for-profit or nonprofit entity.
The fee payment MUST be made through ACH debit from the employer’s bank account. During the registration process the employer will be required to provide account information that will be used by the IRS to withdraw the payment on the date specified by the employer. The first portion of the fee ($52.50 per covered life) is due by
January 15, 2015 and the second payment ($10.50 per covered life) is due by November 15, 2015. Employers have the choice of paying both installments by January 15th or breaking the fee up into two payments. Employers will be required to register twice if they want to split the payment.
This article refers to regulations issued through September 30, 2014. It is intended to be a summary of important issues and should not be considered legal or tax advice.
© Bell Associates and “Ask the Professionals,” 2014. Unauthorized use and/or duplication of this material without express and written permission from Bell Associates is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Bell Associates and “Ask the Professionals” with appropriate and specific direction to the original content.