The Affordable Care Act's transitional reinsurance program aims to stabilize the individual health insurance market as, starting in 2014, insurers provide coverage to large numbers of individuals who don't currently have coverage and present uncertain risks. The program will provide reinsurance payments to insurers that take on high-risk individuals and will be funded through a three-year tax - $63 per covered life per covered year for 2014 - on employer-sponsored group health plans.
And while the first major compliance deadline for the program is still more than a year away, employers should be thinking about it now, says Garrett Fenton, counsel with Miller & Chevalier.
"It really is just an involved, complex process, more complex than I think a lot of employers may be giving credit to at this point," he says.
Fenton spoke to EBN about the intricacies of the transitional reinsurance program and what employers can do to start preparing for it.
What does the transitional reinsurance program provide for?
In a nutshell, ultimately what it does, is it provides for the collection of reinsurance contributions from group health plans, whether they're self-funded or fully insured. It provides for the collection of these annual reinsurance contributions from those plans and health insurance insurers, and it then distributes those funds out to health insurance companies that provide individual health insurance coverage for the first three years the exchanges will be operational, which is 2014 through 2016.
What was the rationale behind this program?
With all the reforms that are taking effect beginning in 2014, and with the exchanges that are going to be out there that people can buy coverage through on a guaranteed issue basis with no preexisting condition exclusions and, really, no matter how sick they are, there's going to be a lot of uncertainty and risk in the individual health insurance market at the beginning of 2014.
So this program is supposed to provide a way to sort of smooth that over, at least for the first three years, by providing health insurance companies with the ability to, if they have individuals who are enrolled in coverage who have a really high claims experience - they get really sick or they have high claims costs that the insurance company would otherwise lose money on, for example - that they could at least have this mechanism in place where these funds will be available to sort of soften that blow a little bit and reimburse them a little bit for those expenses that they're going to be incurring.
What sort of compliance deadlines do employers need to be aware of?
The first sort of major compliance deadline is going to be the end of 2014.
Basically, the first thing that will need to be done is employers, or their third-party administrators on their behalf, are going to need to report to the Department of Health and Human Services the number of enrollees that they have in their coverage - their employees, spouses and dependents, and basically every person that's covered under their group health plan. That will be in November of 2014, and they'll be reporting, for the year 2014, so everyone who is covered under their group health plan in 2014.
HHS is going to take that number and do their calculations and basically submit a bill to the employer about a month after that, toward the end of 2014, and then the employer will have 30 days from receiving that bill in which to pay the contribution amount to HHS for which they've been billed, which will be $63 per covered life.
Has the employer mandate delay affected this program at all?
It hasn't, and that's a good point to bring up. This is a completely separate provision, is not impacted by the delay in the employer mandate at all, just a completely separate provision. It's not even administered by the same agency. This is HHS that's administering this program, whereas the employer mandate is administered by the IRS, and the delay was announced by the IRS and the Treasury Department.
Why is it important for employers to be thinking about this now?
My experience has been that a lot of employers aren't aware of these transitional reinsurance program contributions, or aren't as aware as they probably should be, and haven't done anything or enough, at least, to prepare for it.
I think one of the main takeaways at this point is that employers really need to start thinking about this and what they're going to be doing to comply. [They need to] prepare to incur the financial liability, which is not going to be a small amount - we're talking $63 per covered life for 2014, and that number will go down in 2015 and 2016, but in the immediate future for 2014, $63 per employee, per dependent, per spouse that's covered on the plan. It can be a lot, especially when you're dealing with a large, self-funded employer. So, [employers need to] not only prepare for taking that financial hit, but also just to prepare for how they're going to administer this.
The way the rules are written now, the obligation is on the plan, which means that ultimately, it's on the employer to submit the count of enrollees, the number of employees and dependents who are enrolled in coverage to HHS each year and to deal with HHS in receiving the bill and paying the bill.
But many employers, if not most employers, don't have the infrastructure really to implement that and deal administratively with the process of complying with these requirements, so there's a feeling out there that a lot of the consulting firms and third-party administrators out there will offer, for a fee, this as a service that they provide.
That will require some coordination. [Those firms will] need to have all sorts of information available to them in order to actually perform those enrollee counts, and there are different counting methods, and it's just a very intricate process that needs to begin now for employers to determine how they're going to comply, how they're going to actually administer the requirement that they make these contributions and report the information to HHS.
And if that involves hiring someone to perform those functions on their behalf, which in most cases it probably will, then they'll need to begin that process now, making sure that vendors who are doing this reporting for them and administering the contributions for them have all the information they need in order to do so.
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