Last week, we discussed the PCORI fee. This week, we wanted to update you on yet another fee – the "transitional reinsurance program fee" – that could represent a significant cost to employers, to the tune of an estimated $63 per covered life in the first year, beginning in 2014.
On December 7, 2012, the Department of Health and Human Services (HHS) issued proposed regulations regarding the "transitional reinsurance program" under the Affordable Care Act. This program was established to help stabilize premiums in the individual health insurance market from 2014 to 2016. Essentially, it is designed to provide funding to insurance companies, to discourage them from increasing their premiums to cover the risk of insuring new high-risk enrollees in the individual market.
The total amount to be collected over three years is $25 billion, with $20 billion earmarked for the reinsurance program (i.e., to be distributed to insurers) and $5 billion to the federal government. This amount will be collected from health insurance issuers and from third party administrators on behalf of self-insured plans (or paid directly by a self-funded, self-administered plan), and is heavily front-loaded, so that the fee will be the highest in 2014 and reduced in the next two years. Although the proposed regulations do not provide the amount of the fee, the preamble to the regulations estimates it to be $63 per covered life in 2014.
HHS will collect the reinsurance fees on an annual basis. By November 15 of each benefit year 2014, 2015, or 2016, the contributing entity (the health insurance issuer or third party administrator) is required to submit to HHS the number of covered lives subject to the fee for that calendar year, and then, by the later of December 15 or 15 days after the submission, HHS will notify the contributing entity of the total fee. The contributing entity then must remit its payment to HHS within 30 days of receiving the bill with the amount due. Accordingly, the first payment of the transitional reinsurance fee generally will be due on or before January 14, 2015.
Finally, although it may be cold comfort to employers facing yet another fee in 2014, in a "Frequently Asked Questions" document issued in conjunction with the proposed regulations, the IRS confirmed that these fees are tax deductible by plan sponsors as ordinary and necessary business expenses.
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