The PPACA established two new programs, both of which are accompanied by new fees. The relatively small PCORI fee of $1 per covered life is due on July 31 of this year for plan years that end after October 1, 2012—the form used to remit PCORI fees is discussed here. Because of the fast approaching due date, many employers are currently focusing their attention on paying PCORI fees on time. However, employers should be aware that a more substantial fee of $63 per covered life will be due sometime after November 2014. This “reinsurance fee” will be imposed to fund the transitional reinsurance program, which is designed to assist in the stabilization of premiums in the new individual insurance marketplaces from 2014–2016.
Most employers are concerned primarily with one question: Who pays the reinsurance fee? If an employer purchases health coverage from an insurer, then the insurer will be responsible for paying the fee. If an employer sponsors a self-funded health plan, the plan itself is responsible for paying the fee; however, self-funded plans may elect to utilize a third party administrator or administrative services only contractor to transfer the reinsurance contribution.
In general, reinsurance fees apply to any insurance plan that offers “major medical coverage.” Major medical coverage refers to a broad range of services and treatments including preventive services, diagnostic services, inpatient treatments, outpatient treatments, and emergency room treatments. Major medical coverage does not include coverage that is limited in scope or extent, such as stand-alone dental or vision coverage, hospital indemnity coverage, and dread disease coverage. The PPACA and accompanying regulations explicitly exclude several types of plans from being subject to reinsurance fees, such as HSAs (Health Savings Account)—these are excluded because they are essentially just restricted bank accounts; HRAs (Health Retirement Account); stop-loss coverage; and if they do not offer “major medical coverage,” wellness programs.
For 2014, the fee will be calculated by multiplying the total number of covered lives by $63. To determine the number of covered lives, one of four methods can be used. First, the “actual count method” involves averaging the number of covered lives for each day of the first nine months of the benefit year. Second, the “snapshot count method” involves averaging the number of lives on a certain date during the first three quarters of the benefit year. Third, the “snapshot factor method,” which is only available to self-funded plans, is similar to the snapshot count method except the number of covered lives is determined using a formula that takes dependents into account without actually counting them. Fourth, the “Form 5500 method,” which is only available to self-funded plans, involves utilizing a formula based on Form 5500. For all of these methods, COBRA qualified beneficiaries and dependents are counted as covered lives under a plan. Enrollment data must be submitted to HHS by November 15, and HHS will inform the entity responsible for paying the fee the amount of the fee for the year by whichever is later December 15 or 30 days after receiving the data. Payment will be due 30 days after an entity receives the notification from HHS.
When the fee is paid, it can be paid using plan assets, even for plans that are covered by ERISA. Further, the IRS has explained that the fee will typically be deductible as an ordinary and necessary business expense.