Do you remember Dec. 18 when Congress and the president delayed the Cadillac tax until 2020? Do you remember reading that the same new law also placed a one-year moratorium on the annual fee the Affordable Care Act imposes on most health insurers? Because this moratorium was for 2017, I filed this latter news in the too-good-to-be-true long-term bin and turned my focus to which marinade to use for our chargrilled 2015 Christmas turkey.
Meanwhile, this moratorium is quietly set to go live January 2017. Short of an act of Congress, it will. What this means, on paper, is that most employers sponsoring fully insured medical, dental and vision plans will see renewals 3% to 4% lower than what they would have been without this December 2015 congressional gift.
As you might recall, this fee — which I like to think of as an ACA federal premium tax — went into effect Jan. 1, 2014. Naturally, most insurers elected to pass along this new fee via premium increases. Thus, this fee initially increased most fully insured medical, dental and vision premiums by an additional 2% to 3%.
Then, in 2015, the fee’s total revenue goal increased from $8 billion to $11.3 billion and the total premium impact increased to 3% to 4% for most plans. In 2016, the impact remains the same. Because this fee does not extend to third-party administrators facilitating self-funded arrangements, including most “level-funding” products, the delta between fully insured premiums and maximum self-funded liabilities began narrowing in 2014; this fee sometimes impacts stop-loss premiums. Thus, more employers began migrating to self-funded medical and dental plans.
Let’s consider the impact of the approaching 2017 fee moratorium, the ways employers can use the moratorium to their financial advantage and what might happen when the moratorium ends in 2018.
Will all fully insured renewals build in a 3% to 4% premium reduction into their 2017 rate calculation?
Don’t bet on it. In speaking with an underwriter of a major health insurer last week about this moratorium, I shared my expectation that a mutual client would realize this rate relief concurrent with its Jan. 1, 2017 renewal. The underwriter’s resulting nervous laughter was telling. Having worked for an insurer earlier in my career, I suspect underwriters will be cautious about lowering renewals by 4% for 2017, only to load them back up another 6% or so for 2018 (the revenue goal from 2016 to 2018 jumps from $11.3 billion to $14.3 billion). Insurers know most plan sponsors would rather see steady, modest increases versus, for example, a flat renewal followed by a 20% increase. Thus, negotiation will likely be needed to achieve this 3% to 4% rate relief.
How can a plan sponsor confirm if the insurer’s renewal includes this rate relief?
For larger employers sponsoring fully insured plans, there should be a line item in the renewal formula for ACA-related fees. If so, simply compare the line item from last year’s renewal with this year’s renewal and see if the reduction was made. Because the transitional reinsurance fee is scheduled to end this year, the only ACA fee that should remain in a January 2017 renewal formula is the relatively small Patient Centered Outcomes Research Institute fee.
The renewal math becomes more complicated if the plan does not renew on Jan. 1. For example, if the plan renews on Oct. 1, 2016, the renewal formula should logically have a full year of the PCORI fee, a quarter year of this annual fee and a quarter year of the transitional reinsurance fee. Try to think in ballpark terms regarding this math. It won’t be perfect.
For smaller employers sponsoring large-group fully insured plans, if the health insurer does not release a renewal formula, it won’t necessarily be clear if the insurer has removed this fee from the premiums. If not, ask. An insurer acting in good faith will answer this question. During the negotiation of several October 2016 renewals for our clients, the insurers, when asked, admitted to not providing this rate relief and promptly provided it once their bluff was called.
For employers sponsoring plans in the small-group fully insured health market, the rates are likely filed with the respective state and are non-negotiable. Hopefully, your state proactively negotiated this aspect with the insurer before setting the rates.
How will this moratorium affect level-funded arrangements?
Again, this fee applies to most fully insured plans and, aside from stop-loss premiums, does not generally apply to level-funded products. Thus, if an employer adopted level funding primarily because the product’s maximum liability was about the same or lower than an apples-to-apples fully insured arrangement, the fee moratorium will reduce the savings of level funding by about 4% for 2017. However, an even higher amount of savings will then return in 2018 (in theory).
The best guess is that most employers that moved to level funding won’t be inclined to move back to fully insured for 2017 and then move back again to level funding in 2018. On the other hand, if employers are presently fully insured, the financial lure of moving to level funding will likely ebb until 2018. But, it could then surge, as this fee’s revenue target increases 26% in 2018.
Since 3% to 4% of dental and vision premiums isn’t much in total dollars, should employers bother negotiating those amounts?
I tend to be in the benefits management camp that says, “If you find a $500 bill on the sidewalk, step on it.”
Are there additional ways employers can use this 2017 moratorium to their advantage? Please let us know via the below comments section.
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