Transitional Reinsurance Program (Reinsurance Fees)

The Affordable Care Act (ACA) created a transitional reinsurance program to help stabilize premiums in the individual market for the first three years of Exchange operation (2014-2016), when individuals with higher-cost medical needs gain insurance coverage. The program imposes a fee on health insurance issuers and self-funded group health plans (contributing entities).

On Aug. 18, 2015, CMS published a bulletin that provides operational guidance and examples for contributing entities on how to calculate their annual enrollment counts for purposes of the reinsurance fees. For the 2015 benefit year, contributing entities are required to submit their annual enrollment count no later than Nov. 16, 2015.

Overview of the Reinsurance Fees

The ACA requires “contributing entities” to pay fees to support the reinsurance program. A contributing entity is defined as a health insurance issuer or a third-party administrator (TPA) on behalf of a self-insured group health plan (including a group health plan that is partially self-insured and partially insured, where the health insurance coverage does not constitute major medical coverage).

As described below, certain types of coverage are excluded from paying fees to the reinsurance program:

  • Fully-insured Group Health Plans: For insured health plans, the issuer of the health insurance policy (insurance carrier) is required to pay reinsurance fees. Although sponsors of fully-insured plans are not responsible for paying the reinsurance fees, issuers will likely shift the cost of the fees to sponsors through premium increases.
  • Self-insured Group Health Plans: For self-insured plans, the plan sponsor is liable for paying reinsurance fees, although a TPA or administrative-services-only (ASO) contractor may pay the fee at the plan’s direction. For a plan maintained by a single employer, the employer is the plan sponsor. The Department of Labor (DOL) has advised that paying reinsurance fees constitutes a permissible expense of the plan under ERISA because the payment is required by the plan under the ACA.

For 2015 and 2016, the term “contributing entity” excludes self-insured group health plans that do not use a TPA in connection with the core administrative functions of claims processing or adjudication (including the management of internal appeals) or plan enrollment for services other than for pharmacy benefits or excepted benefits. A self-insured group health plan that uses an unrelated third party to obtain provider network and related claim repricing services, or uses an unrelated third party for up to 5 percent of claims processing or adjudication or plan enrollment, will not be deemed to use a TPA, based on either the number of transactions processed by the third party, or the value of the claims processing and adjudication and plan enrollment services provided by the third party.

Annual Enrollment Count Submissions

For the 2015 benefit year, contributing entities are required to submit their annual enrollment count through Pay.gov no later than Nov. 16, 2015 (as Nov. 15, 2015, is a Sunday). The annual enrollment count must identify the number of covered lives of reinsurance contribution enrollees during the 2015 benefit year for all of the contributing entity’s “major medical coverage,” unless an exception applies to the coverage.

Contributing entities will use the “2015 ACA Transitional Reinsurance Program Annual Enrollment and Contributions Submission Form” to submit their annual enrollment counts, which is expected to become available on www.Pay.gov on October 2, 2015. This form will auto-calculate the contribution amount owed based on the 2015 uniform contribution rate of $44 per reinsurance covered life.

Counting Methods for Determining the Number of Reinsurance Covered Lives

CMS has provided the following five permitted counting methods that contributing entities may use to calculate the number of covered lives of reinsurance contribution enrollees for a benefit year:

  • The Actual Count Method:
    • Available to Health Insurance Issuers and Self-insured Group Health Plans
    • This method requires a contributing entity to:
      • Add the total number of lives (enrollees) covered for each day of the first nine months of the benefit year; and
      • Divide that total by the number of days in those nine months
  • The Snapshot Count Method:
    • Available to Health Insurance Issuers and Self-insured Group Health Plans
    • This method requires a contributing entity to:
      • Add the total number of covered lives of reinsurance contribution enrollees on any date (or more dates, if an equal number of dates are used for each quarter) during the same corresponding month in each of the first three quarters (for example, March, June and September) of the benefit year; and
      • Divide that total by the number of dates on which a count was made.
  • The Snapshot Factor Method:
    • Available only to Self-insured Group Health Plans and Multiple group health plans maintained by the same plan sponsor that do not include an insured plan.
    • This method requires a contributing entity to:
      • Add the total number of covered lives of reinsurance contribution enrollees on any date (or more dates, if an equal number of dates are used for each quarter) during the same corresponding month in each of the first three quarters of the benefit year; and
      • Divide that total by the number of dates on which a count was made.
        The date(s) used for the second and third quarters must fall within the same week of the quarter as the corresponding date(s) used for the first quarter. In addition, the same months must be used for each quarter (for example, March, June and September).
    • Under 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; and
      • The product of the number of participants with coverage other than self-only coverage on the date and a factor of 2.35.
        • The 2.35 dependency factor was developed by the IRS to reflect that all participants with coverage other than self-only have coverage for themselves and some number of dependents. The IRS developed the factor (and other similar factors used in the regulations) in consultation with Treasury Department economists as well as with plan sponsors regarding the procedures they currently use for estimating the number of covered individuals.
  • The Member Months or State Form Method:
    • Available only to Health Insurance Issuers
    • This method requires an issuer to multiply the average number of policies in effect for the first nine months of the benefit year by the ratio of covered lives per policy in effect, calculated using the prior year’s National Association of Insurance Commissioners (NAIC) Supplemental Health Care Exhibit (or a form filed with the issuer’s state of domicile for the most recent time period).
  • The Form 5500 Method:
    • Available only to Self-insured Group Health Plans
    • This method requires a self-insured group health plan to use the number of covered lives of reinsurance contribution enrollees for the most current plan year, calculated based on the “Annual Return/Report of Employee Benefit Plan” filed with the DOL (Form 5500) for the last applicable time period.
    • The IRS understands that, for the 2015 benefit year, self-insured group health plans would use the Form 5500 for 2014 in light of the Form 5500 reporting deadlines.
    • For purposes of this counting method:
      • The number of lives covered for the plan year for a plan offering only self-only coverage equals the sum of the total participants covered at the beginning and end of the plan year (as reported on Lines 5 and 6(d) of the Form 5500), divided by 2.
      • The number of lives covered for the plan year for a plan offering self-only coverage and other-than-self-only coverage equals the sum of the total participants covered at the beginning and the end of the plan year, as reported on Lines 5 and 6(d) of the Form 5500.

A group health plan with a self-insured coverage option and an insured coverage option may choose to report its annual enrollment count on either an aggregated or separate basis. In addition, if there are multiple group health plans maintained by the same plan sponsor (including one or more insured group health plans) that collectively provide major medical coverage for the same covered lives simultaneously, the plan sponsor may choose to report its annual enrollment count on either an aggregated or separate basis.

In either case, a group health plan does not need to treat the following as providing major medical coverage:

  • Any coverage option or group health plan that consists solely of excepted benefits;
  • Any coverage option or group health plan that only provides benefits related to prescription drugs; or
  • Any coverage option or group health plan that is a health reimbursement arrangement (HRA), health savings account (HSA) or health flexible spending arrangement (FSA).

Partial Year Coverage

A health plan or coverage may be established or terminated, or may change funding mechanisms during the first nine months of a benefit year. This is referred to as Partial Year Coverage. When a group health plan that offers only one coverage option changes from self-insured to fully insured during the calendar year:

  • The self-insured group health plan would be responsible for paying the reinsurance contribution for those reinsurance contribution enrollees from Jan. 1, 2015, through the date on which the plan changed to fully insured.
  • The issuer of the fully insured plan would be responsible for paying the reinsurance contribution for those reinsurance contribution enrollees, starting on the date that the plan changed to fully insured through Sept. 30, 2015.

Therefore, both plans would be responsible for paying a portion of the contribution for the year in which the change was made on behalf of the covered lives of reinsurance contribution enrollees in those plans, using one of the permitted counting methods, as applicable. This approach would also apply if a plan changes from fully insured to self-insured status during the calendar year.

A health plan or insurance coverage may also be established or terminated, or may change funding mechanisms (that is, from fully insured to self-insured or self-insured to fully insured) in the middle of a quarter. In these circumstances, the new plan or coverage would not have covered lives enrolled in the plan or coverage for the entire quarter. If this occurs, a contributing entity could, due to its selection of dates, be required to pay an amount significantly greater or less than the amount that would be due based on its average count of covered lives under the plan or coverage over the course of the ordinarily applicable nine-month counting period.

To avoid this result and to ensure that contributions are required to be paid only once with respect to the same covered life, CMS has provided a special rule in this case. If the plan or coverage in question had enrollees on any day during a quarter and if the contributing entity elects to and is permitted to use either the Snapshot Count Method or Snapshot Factor Method, it must choose a set of counting dates for the nine-month counting period so that the plan or coverage has enrollees on each of the dates, if possible.

However, the enrollment count for a date during a quarter in which the plan or coverage was not in existence during the entire quarter can be reduced by a factor reflecting the amount of time during the quarter for which the plan or coverage did not have enrollment. This approach is intended to accurately capture the amount of time during the quarter for which major medical coverage was provided to reinsurance contribution enrollees, while not requiring contributions to be paid more than once with respect to the same covered life.

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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.