For Healthier Employees and Healthier Businesses

Embedded in the 337 pages of proposed regulations on reinsurance programs which require contributions by health insurers and self-funded group health plans are new fees.

The Health and Human Services (HHS) proposed guidelines make several changes from the original regulations issued earlier in the year, for example, rather than quarterly contributions to be collected by the states, the amount will be collected by HHS annually at a rate of $63 per covered life per year or ($5.25 per month).   The requirement to pay the fee will be assessed on fully insured plans for major medical coverage and insurers are liable for paying the contributions.  Self-funded plans are liable for the contributions, although a TPA can be used to remit the contributions on the plan’s behalf.  HHS will collect all the fees, rather than the state as previously proposed.  This is notable because where states were going to operate their own reinsurance program they were originally going to collect the fees themselves.

This issue is raising great concern for employers who self-fund their health benefits due to the additional cost associated with this fee, which will be based on the number of covered lives in the plan, starting in 2014.  By November 2014, HHS will notify each plan of the amount they must pay by December 15, 2014. The fees must be remitted within 30 days and failure to pay will subject the entity to federal penalties.  Given the financial impact of the fees associated with ACA, this is an important issue that Group Resources will continue to monitor on your behalf.

PART TWO

Eligibility for Reinsurance Payments

The first three years that the Exchanges are operational, they may experience adverse selection related to new rating rules and market changes.  From 2014 to 2016, the Department of Health and Human Services (HHS) will collect contributions totaling $25 billion from self-insured group health plans and insurers and allocate those funds in payments to insurers that cover high-cost individuals in the fully-insured market.  The purpose of the applicable reinsurance fee is to help stabilize premiums for coverage in the individual market in a State.

HHS estimates that reinsurance contributions will roughly equal one percent of premiums in the total market in 2014.  The contribution percentage is expected to go down in 2015 and 2016 and will end in 2017.  HHS recently issued proposed regulations regarding the payment of reinsurance contribution.

The reinsurance-eligible plans will, according to the regulations issued on Dec. 7, 2012, make a request for payment when an enrollee of that reinsurance-eligible plan has met the criteria for reinsurance payment as set out in the annual HHS notice of benefit and payment parameters, generally a request for payment is based on covered claims costs for an enrollee.

Three proposed payment parameters are established to help offset high cost enrollees.   With the coinsurance rate, reinsurance cap and attachment point fixed uniformly across all States, HHS believes the reinsurance program would have the greatest equitable impact on premiums across all States, promote national premium stabilization and market stability while providing plans incentive to continue to effectively manage enrollee costs.  An issuer of a reinsurance-eligible plan in a State in which HHS is operating the reinsurance program must submit data to be considered for risk adjustment payments and charges and reinsurance payments for the applicable benefit year by April 30, of the year following the end of the applicable benefit year.

Who is eligible to receive reinsurance payments? All health insurance issuers contribute to the reinsurance pool, however only health insurance issuers with plans in the individual market are eligible to receive payments.  HHS regulations establish that a reinsurance-eligible plan that submits a request for payments will be based on covered claims costs for an enrollee incurred prior to the application of 2014 market reform rules.  HHS states that claim costs for an enrollee incurred prior to 2014 do not count toward either the national or State supplemental attachment points, reinsurance caps or coinsurance rates.  As a result, policies that are issued in 2013 will be subject to the regulations at the time of renewal in 2014, and therefore become eligible for reinsurance payments at the time of renewal in 2014.  See Section 153.234

How will HHS operate the reinsurance program?  HHS will operate the reinsurance program on a calendar year basis.  A calendar-year based program would ensure adequate collections in the early part of the program and preserve fairness in making reinsurance payments.   Further, HHS rationalizes that the calendar year based program permits the reinsurance program schedule to coincide with the MLR and temporary risk corridors program schedules, both of which operate on a calendar year basis.

How are the Reinsurance fee payment parameters established? Section 1341(b)(2)(B) of the ACA gave HHS authority to propose a policy to establish a uniform national reinsurance payment parameter.  Reinsurance fee payments to eligible issuers will be made for a portion of an enrollee’s claim costs paid by the issuer that exceeds an attachment point subject to a reinsurance cap.  The coinsurance rate attachment point and reinsurance cap are the reinsurance “payment parameters”.

HHS proposes to set national payment parameters with an attachment point of $60,000 when reinsurance payments would begin.  They also establish a national reinsurance cap of $250,000 when the reinsurance program stops paying claims for a high cost individual and a uniform coinsurance rate of 80 percent meant to reimburse a portion of claims between the attachment point and the reinsurance cap while giving issuers an incentive to contain costs.

How will the payments be made?  Who will direct the allocation and distribution of reinsurance contributions? HHS would directly collect from health insurance issuers, as well as self-funded group health plans, the reinsurance contributions for enrollees who reside in that State.  HHS will also distribute the reinsurance payments.  HHS clarifies that they will direct the collection, even if a State establishes a reinsurance program, Section 153.220(a)

Notification of Reinsurance Payments: How will plans know what their payment will be?

HHS will use a distributed data collection approach to run software on enrollee-level and claims level data from an issuer’s dedicated data environment.  This approach will require close technological coordination between issuers and HHS.  See Section 153.700(a).  The issuer of a risk-adjustment covered plan or a reinsurance-eligible plan in a State where HHS is operating the risk adjustment or reinsurance program, must establish a dedicated data environment and provide data access to HHS in a manner and timeframe specified by HHS for risk adjustment and reinsurance operations.  In order to receive payments, issuers will be required to establish secure, dedicated electronic server environments to house medical and pharmacy claims, encounter data and enrollment information.  Issuers will make this data accessible to HHS in an HHS-specified electronic format and provide HHS with access to the data environment to install, update and operate common software.  More information on the software, etc. will be forthcoming from HHS.

What happens if not enough contributions are collected? Will the amount of contribution change? HHS has authority to adjust the reinsurance payments through a uniform, pro rata adjustment rate in the event that they believe the total requests for reinsurance payments exceed the amount of reinsurance contribution collected under the national contribution rate during a benefit year.

If HHS collects more money than they need to fulfill the need, no adjustment will be made.  If HHS determines the total reinsurance contributions collected under the national contribution rate for the “applicable benefit year” are equal to or more than the total requests for reinsurance, then no adjustment will be made.  Unused reinsurance funds would be used for the next benefit year’s reinsurance payments.

What kind of data collection standards exist and what is required from a reinsurance-eligible plan?  HHS has clarified that a State can provide applicable reinsurance entities the ability to collect or be provided with access to the data necessary to determine reinsurance payments from an issuer of a reinsurance-eligible plan.  The data would include information related to cost sharing reductions because reinsurance payments are not based on a plans paid claims amounts that are reimbursed by cost sharing reduction amounts.  Section 153.240(a)

When HHS operates a reinsurance program on behalf of a State, they will utilize the same distributed data collection approach.  The distributed data collection approach would not involve the direct collection of data, instead, HHS or the State would access data on secure servers.

Will there be personally identifiable information disclosed? HHS proposes that issuers establish a unique masked enrollee identification number for each enrollee to be used across enrollments or plans within the issuer within the State during the benefit year.  The masked enrollee identification number may not include enrollees personally identifiable information.  See Section 153.720(a)

When must the data be submitted for eligibility for an eligible entity to receive reinsurance payments? An issuer of a reinsurance-eligible plan in a State in which HHS is operating the reinsurance program must submit data to be considered for risk adjustment payments and charges and reinsurance payments for the applicable benefit year by April 30 of the end of the applicable benefit year. See Section 153.730

In general, HHS reports that annual reinsurance payments will not be determined until April 30 of the year following the applicable benefit year.  The payments will be made once all requests for reinsurance payments have been submitted and any adjustments have been made. Section 153.230(d)

What kind of data requirements are required for the reinsurance fee? HHS has added a new section entitled “Distributed Data Collection for HHS-Operated Programs” which covers the types of data collection process that HHS would use when operating a reinsurance program on behalf of a State for the evaluation of claims eligible for reinsurance payments for reinsurance-eligible plans. HHS would use the same distributed data collection approach used for risk adjustment, however only data elements necessary for reinsurance claim selection will be considered for purposes of determining the reinsurance payment.

What is the data collection period? HHS will collect data for medical and pharmacy claims that are incurred and paid in a benefit year.  The data claim period includes claims paid on or after January 1 of the applicable benefit year data prior to the submission deadline.

Acceptable reinsurance data leading to eligible claim selection for the reinsurance program includes:

• Claim types: Data to identify eligible reinsurance paid claims would include medical and pharmacy claims, claims that resulted in payment by the issuer as the final action, and encounters priced in accordance with issuer pricing methodologies.
• Capitated Plans: Data submitted by issuers that do not generate claims in the normal course of business would be accepted for consideration when services were performed in the benefit year beginning on or after January 1, 2014, and submitted prior to the applicable data submission deadline.  Additional guidance will be provided for encounter claims for reinsurance calculations.
• Reinsurance processing and reporting: HHS plans to provide each issuer with a periodic report on data functions performed in each issuer’s distributed data environment, including the identification of reinsurance-eligible claims by State.  The reports would indicate whether HHS has accepted or rejected submitted files and data and errors detected by HHS.  Issuers would need to provide corrected files and data to address errors identified.  Future guidance will provide timeframes for processing and reporting of these data reports.

What are national reinsurance payment parameters and how are they calculated? National reinsurance payment parameters are calculated to expand all reinsurance contributions collected under the national contribution rate. Similarly, the additional funds collected by the State for reinsurance payments or additional State funds are to be calculated to cover all additional reinsurance payments projected to be made under the State supplemental payment parameters.  Why are there two different funds?  Because the national payment parameters and State supplemental payment parameters apply to two separate funds, it is important for a State to distinguish between reinsurance payments made under the two different sets of parameters so that reinsurance-eligible plans can understand how each reinsurance program will likely affect claim costs.

Can a State operate its own reinsurance program? A State can operate its own reinsurance program, however it cannot override the program operated by HHS.  Additional administrative expenses will only be collected by a State operating its own reinsurance program in that State.

Can States collect more fees? States operating their own reinsurance programs may elect to collect more than the amounts based on the national contribution rate set forth by HHS.  However, the regulations specify that a State that elects to collect additional reinsurance contributions for administrative expenses or reinsurance payments under the ACA, may not collect additional fees from self-funded group health plans covered by ERISA as the Federal law generally preempts State law that relates to an ERISA-covered plan.

How will the reinsurance payments be calculated?  The reinsurance payments will be calculated based on aggregate contributions collected and total requests for reinsurance payments nationally.  For that reason, HHS will be the centralized collection process for all contributing entities to facilitate disbursement of funds.  Once HHS has collected all reinsurance contributions from all entities for a State, utilizing the national contribution rate, they will be prepared to establish the available distribution.

Will State residency impact reinsurance payment for reinsurance-eligible plans? HHS has eliminated the requirement regarding State residency for those reinsurance contribution enrollees as proposed in previous regulations.

Can States collect and use additional funds and from which sources?

States may use additional funds collected as additional reinsurance contributions to make reinsurance payments under the State supplemental reinsurance payment parameters.   States can use funds collected for State high-risk pools for supplemental payments. 153.220(d)(3)

The Premium Stabilization Rule requires that reinsurance contributions be allocated as required in the annual HHS notice of benefit and payment parameters for the applicable benefit year.  The applicable benefit year contributions will be allocated for reinsurance payments within the State.  The payments are only to be used for reinsurance payments and contributions allocated for payments to the U.S. Treasury, paid in the timeframe and manner established by HHS.

How will additional funds be used? HHS has proposed that additional contributions collected and allocated for reinsurance payments under the State supplemental reinsurance payment parameters must be used to make reinsurance payments. 153.220(d)(1)(ii)

What if a State has a high-risk pool, can they collect additional fees? Do states have the flexibility to decide whether to maintain, phase out, or eliminate their high-risk pools?  ACA permits a State to coordinate its high-risk pool with the reinsurance program “to the extent not inconsistent” with the statute.  State high-risk pools are excluded from making reinsurance contributions and cannot receive reinsurance payments.  See Section 1341(d) of the ACA and Section 153.400

What does it mean for a State to have a High-Risk Pool?  Because State high-risk pools and the transitional reinsurance program both target high-cost enrollees, high-risk pools can operate in parallel with the reinsurance program, serving a distinct subset of the target population.   A State could continue its program to complement the Exchange coverage and coordinate the entry of the State high-risk pool enrollees into the Exchange. HHS will give more guidance on ways in which the State can continue its program to complement the Exchange coverage.  However, nothing in the Premium Stability Rule prevents a State that establishes its own reinsurance program from using State money designated for its own high-risk pool towards reinsurance.  The State may not use funds collected for the reinsurance program for its high-risk pool.

Can States use reinsurance contributions for administrative expenses?  HHS has set parameters on how States can use applicable reinsurance  entity fees for administrative costs.