Q&A: Reinsurance Fees Under the ACA

Topics: Health Care Reform

Welcome to American Health Line's new Q&A feature, Expert Explanations, where we ask experts to provide insight on a health policy issue.

For this edition of Expert Explanations, Kathryn Bakich -- senior vice president and national health care compliance practice leader at Segal Consulting -- discusses reinsurance fees, which some business and labor groups will be excluded from paying in 2015 and 2016 under the Obama administration's most recent changes to the Affordable Care Act.

As part of the changes to the ACA announced last week, the administration excluded some business and labor groups "from the obligation to make reinsurance contributions" in 2015 and 2016 for certain self-insured, self-administered group health plans. What exactly does that mean?

The Transitional Reinsurance Fee is part of the ACA.  The statute says that the fee is assessed against insurance companies and third-party administrators (TPAs).  The statute instructed states to set up reinsurance entities and collect the reinsurance fees, but only a couple of states agreed to do this, so HHS set up the reinsurance program itself.  HHS expanded the statute to include self-insured plans that were not administered by TPAs.  Since the statute doesn’t give HHS this authority, they recognized the error and changed the interpretation so that the fee is not assessed against self-insured, self-administered plans.  This includes any self-insured, self-administered plan, whether corporate, governmental, or collectively bargained.  HHS refused to make this change retroactive to 2014, because it says that insurers relied on the assessed payment of $63 per person per year when setting premiums for 2014.

A number of media outlets misinterpreted this change. How did they get it wrong?

It's a very complicated part of the law made more complicated by the fact that HHS now has two interpretations of the same law, but for different years.  Plus many media outlets got this confused with the "you can keep the plan you like" delay, which allowed certain insurance companies to keep offering non-compliant plans.  It's amazing anyone can keep up with ACA regulations.

Some outlets mentioned the effect on Taft-Hartley plans. What are Taft-Hartley plans and how will they be affected?

Taft-Hartley or multiemployer plans are established jointly by employers and unions to provide benefits to workers and their families.  The plans are run by a joint board made up of both employer and labor representatives.  Like single-employer plans, some multiemployer plans are insured, others are self-insured.  Some of the self-insured plans are self-administered. However, the definition of "self-administered" is so narrow in the HHS regulation that few plans, whether single employer, government or multiemployer, will be able to avoid the fee.

Why do labor & business groups dislike reinsurance fees?

If you look at any summary of the law published when it was written, you will find no mention of the reinsurance fees applying to self-insured plans.  The fees simply were not identified as something to be paid by self-insured plans, particularly those that do not use a TPA.  So it was a huge shock to employers and plan sponsors when regulations came out saying that self-insured employers must pay the reinsurance fee.  When HHS changed its position for 2015-2016, this was an interpretation that was closer to the statute, but still didn't go far enough.  The amount of the reinsurance fee for some of our clients is more than all of their other administrative expenses combined.  In addition, the fee goes to subsidize the individual insurance market.  Since [Employee Retirement Income Security Act] requires that plans use their assets solely for the purpose of benefiting participants and their family members, paying to support the individual insurance market really goes against the grain for many employers and multiemployer plan sponsors.

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