Health Care Reform: Details Regarding Significant New Fee Payable By Health Plan Sponsors Beginning In 2014

by Franczek Radelet P.C.
Contact

Although it has not been well publicized, a significant new fee on sponsors of group health plans is scheduled to go into effect in 2014 under the Patient Protection and Affordable Care Act (“Affordable Care Act”). Earlier this month, the Department of Health and Human Services (HHS) issued proposed regulations that provide more clarity on the amount of the fee, who is required to pay it, and other details. The two most important details to emerge from this recent guidance are (1) that the proposed amount of the fee is $63 per covered life in 2014, and (2) that the fee must be paid by self-insured health plans (in addition to insured plans). For a large employer that has tens of thousands of covered lives in its group health plans, the annual fee amount will be in the seven figures.

The new fee is being levied by HHS under the Affordable Care Act’s “transitional reinsurance program,” and the fee is expected to be in place from 2014-2016. The total amount that HHS will seek to collect during this period is $25 billion. Most of this will be redistributed to insurance companies to subsidize the now-mandated coverage of high-risk individuals. A small portion will also go to the U.S. Treasury to pay for the Early Retiree Reinsurance Program (known as “ERRP”), a program that is no longer providing benefits.

The recent proposed regulations from HHS, along with other guidance that has been issued by the IRS and DOL, clarify a number of important issues:

  • Amount of Fee: The amount of the fee for 2014 has been proposed at $63 per covered life per year, although this is not final. HHS will finalize this number sometime in 2014, and the amount may increase. The amount of the fee for 2015 and 2016 will be set later.
  • Who is Required to Pay: All self-insured and insured group health plans that provide “major medical coverage” must pay the fee. Stand-alone vision and dental plans and health FSAs are exempt. For insured plans and self-insured plans that use a third party administrator, the insurer/third party administrator will be responsible for reporting and coordinating with HHS, although the cost of the fee will in all likelihood be passed through to the plan sponsor. If a self-insured plan does not use a third party administrator, the plan sponsor is directly responsible for reporting and paying the fee to HHS.
  • Counting Covered Lives: There are a number of permissible methods for counting the number of covered lives in a plan. Options include using the average actual number of covered lives throughout the year, using the average number of covered lives on a series of “snapshot” dates throughout the year, and using data from the plan’s Form 5500.
  • Plans Where Medicare is Primary Payer: The fee is not payable for any participants whose plan coverage is secondary to Medicare (as is the case in many retiree plans).
  • Use of Plan Assets to Pay Fee: The DOL has indicated that the fee can be paid from plan assets. This is not true for certain other fees that plan sponsors must also pay under the Affordable Care Act, such as the much smaller “PCORI” fee that goes into effect in 2013.
  • Deductibility of Fee: The IRS has confirmed that the fee is fully tax-deductible by the plan sponsor.

This reinsurance fee will come as a surprise for many plan sponsors. But it is important to keep in mind that there are ways to build the fee into the plan’s total cost so that participants share in the financial responsibility for the fee. Plan sponsors should start considering these options now so that any necessary revisions to participant contribution obligations are in place by 2014. 

More Information

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Franczek Radelet P.C. | Attorney Advertising

Written by:

Franczek Radelet P.C.
Contact
more
less

Franczek Radelet P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.