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What's Up With This Transitional Reinsurance Fee Anyway?

A fundamental insurance-market reform under the Affordable Care Act is that, beginning in 2014, insurance carriers that want to sell individual policies will be required to make those policies available to all applicants (guaranteed issue) and will be required to set the premiums for those policies based on a "community" rating, with variations based only on the tier of coverage purchased (individual or family), age of the insured, geographic area, and tobacco use by the insured. This is intended to ensure that individuals have access to health insurance without regard to health factors that might otherwise make insurance prohibitively expensive or simply unavailable.

That all sounds pretty good, unless you're the insurance carrier trying to figure out how to absorb the additional risks associated with having to cover people at a set price without regard to how much health care expense they may consume. But the Affordable Care Act makes some provision for them too. For 2014, 2015, and 2016, there will be a transitional reinsurance program through which insurers may offload some of the additional risk assumed in connection with these policies. And it's a pretty big program - $12 billion in 2014, $8 billion in 2015, and $5 billion in 2016.

So who's going to pay for that? Answer: Group health plans.

Beginning in 2014, group health plans will be required to pay a fee for each individual covered under the plan that will be used to fund the transitional reinsurance program. The fee is paid once a year. Plans will be required to tell HHS how many individuals are covered, and HHS will tell them how much the total fee is.

Strictly speaking, for insured plans the fee will be paid by the insurer. But I think we can assume it will be passed through to the plan sponsor in the form of higher premiums.

How much money are we talking about? We won't know for sure until HHS refines its estimates about the total number of people nationwide who are covered under group health plans. (Remember, the government has to take in a total of $12 billion for 2014, so how much they charge per person depends on the number of people covered.) But in a recent proposed rule (here), HHS projected the fee for 2014 to be $5.25 per individual, per month - or a total of $63 per individual, per year.

That's $63 for every person covered under the plan, whether as an employee, spouse, dependent, COBRA beneficiary, retiree, or otherwise.

The fee will likely decline in 2015 and again in 2016. And it is scheduled to go away beginning in 2017. It is, after all, the "transitional" reinsurance program.

But for purposes of 2014 budgeting, employers that sponsor group health plans will want to factor this cost into their projections. 


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Don Berner, the Labor Law, OSHA, & Immigration Law Guy
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Boyd Byers, the General Employment Law Guy
Jason Lacey Image
Jason Lacey, the Employee Benefits Guy
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