FAQs: Transitional Reinsurance Fee

What is the Transitional Reinsurance Program?

Health Care Reform (HCR) directs each state to establish and maintain a “transitional” reinsurance program beginning in 2014 and ending 2016. If the State chooses not to establish a reinsurance program, the Department of Health and Human Services (HHS) will establish a reinsurance program for the state. The reinsurance program (federal or state) will make payments to any health insurance company that provides health insurance coverage to “high-risk individuals” in the individual health insurance market. In other words, the reinsurance program will provide payments to an insurance company as an incentive or reimbursement for selling insurance products in the individual health insurance market that causes that insurance company to experience unexpectedly high health claims in a particular year on account of insuring such high-cost individuals. The reinsurance program is funded through “contributions” made by all health plans regardless of whether they are fully-insured or self-funded.

Which plans are subject to the Reinsurance Fee requirement?

The Transitional Reinsurance Contribution/Fee will be collected for every life covered under major medical, retiree-only and COBRA plans.

There is a limited exception for some self-funded plans that are also self-administered. Most self-funded plans are not self-administered. If a group uses a TPA or ASO to examine and pay claims, then it is not self-administered and thereby is not exempt from paying the fee.

What are the Transitional Reinsurance Fee amounts?

The interim final regulations provide that the contribution rates will be:

  • $63 per covered life per year for 2014 (final)
  • $44 per covered life per year for 2015 (final)
  • $26 per covered life per year for 2016 (estimated)

How is the Reinsurance Fee calculated?

The Reinsurance Fee is calculated by multiplying the average number of covered lives of enrollees during the applicable calendar year by the contribution rate for the applicable calendar year. The average number of covered lives will be determined using a calculation method similar to those used to calculate the number of covered lives for the Patient Centered Outcomes Research (PCOR) Fee. For example, self-insured plans can use the actual count method, snapshot method or Form 5500 method.

Who pays the Transitional Reinsurance Fee?

An insurance carrier pays the fee on behalf of a fully-insured group. Typically, this amount is charged back as part of monthly premiums. Plan sponsors are required to pay the fee on behalf of self-insured groups. A plan sponsor of a self-insured group is permitted to contract with a third party to pay the fee on its behalf.

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The information provided is for informational purposes only and does not constitute legal advice. The information above contains only a summary of the applicable legal provisions and does not purport to cover every aspect of any particular law, regulation or requirement. Depending on the specific facts of any situation, there may be additional or different requirements. This is to be used only as a guide and not as a definitive description of your compliance obligations.