Health Care Reform (HCR) requires certain group health plans to contribute towards the Transitional Reinsurance Program. This program is intended to stabilize premiums for coverage in the individual market during the first three years of Exchange operation. Payment of these Reinsurance Fees affect certain Health Reimbursement Accounts (HRAs). Exempt from these fees are HRAs that are integrated with a self-insured plan or insured coverage that offers major medical coverage, stand-alone vision and/or dental HRA plans*, retiree-only HRAs**, HRAs that cover only prescription drugs, Health Savings Accounts and Medical Flexible Spending Accounts. Wellness programs are exempt if they do not provide major medical coverage.
Here are a few key questions to consider regarding reinsurance fees. Please consult your benefits attorney or consult to determine if these might affect your organization and what calculation method should be used.
1. When are the Reinsurance Fees effective?
The fees are paid annually for “benefit years” 2014, 2015 and 2016. For the purpose of this fee, a benefit year is the calendar year, not plan year, for which the plan provides health benefits.
2. Who pays the Reinsurance Fees?
In general, the fee is paid by the plan.
3. How much are Reinsurance Fees?
For benefit year 2014, the fee is $63/year (or $5.25/month) per covered life. The term “covered life” must include the employee, spouse and eligible dependents covered under the plan. Future fees for 2015 and 2016 will be announced by The Department of Health & Human Services (HHS).
4. How are Reinsurance Fees calculated?
Reinsurance Fees for applicable HRAs are calculated by multiplying the average number of covered lives during the benefit year by the covered life fee for that benefit year. Here are some guidelines:
Determine which counting rule applies:
- If the HRA is integrated with a major medical plan, then the Reinsurance Fee does not apply separately to the HRA and the fee is not due for the covered lives in the HRA.
- For an HRA that is a stand-alone plan: The fee is calculated based on the average number of covered lives in the stand-alone plan.
For an HRA that is subject to the fee, determine the number of covered lives in the HRA using one of the methods below.
- Actual Count Method: Add the actual number of covered lives on each day of the first nine months of the benefit year and divide the total by the number of days in those nine months. Multiply the average number of covered lives by the per covered life fee.
- Snapshot Method: Divide the total number of covered lives on one date in each quarter of the first three quarters of the benefit year by the number of dates on which the count was made. The same months must be used for each quarter (for example, January, April and July) and the date in the second and third quarter must be within the same week of the quarter as the corresponding date used in the first quarter. Multiply the average number of covered lives by the per covered life fee.
- Form 5500 Method: Add together the participant count reported on the Form 5500 at the beginning and the end of the last plan year. Multiply the participant count by the per covered life fee.
5. How are Reinsurance Fees paid?
Fees are paid annually. Data must be provided to HHS by November 15 of the benefit year, beginning November 15, 2014 (generally based on January through September covered lives, even for plans with non-calendar plan years, unless the Form 5500 method is used).
By the later of December 15 or 30 days after receiving the data, HHS will notify the contributing entity the amount of the contribution for the benefit year. Payment is due within 30 days of the date of the HHS notification.
- The IRS has confirmed that self-insured plan sponsors may treat Reinsurance Fees as ordinary and necessary business expenses.
- Further guidance is needed on how the data is to be provided to HHS.
* Proposed rules released in Federal Register, Vol. 78, No 247 (December 24, 2013) eliminated the requirement of employee contributions making stand-alone vision and/or dental HRAs excepted benefits and not subject to the Reinsurance Fee.
** On December 19, 2013, the Center for Medicare & Medicade Services (CMS) issued guidance explaining that retiree-only HRAs are exempt from the Reinsurance Fees since these HRAs impose a dollar limit on benefits and do not provide major medical coverage.