• Transitional Reinsurance Program Fee Applies to Self-Insured Group Health Plans
  • October 7, 2013 | Author: Joanne C. Youn
  • Law Firm: Caplin & Drysdale, Chartered - Washington Office
  • The Patient Protection and Affordable Care Act of 2010 includes a number of fees applicable to sponsors of self-insured group health plans. As noted in our previous client alert "PPACA 2014: The Implications for Employers", such fees include the Patient-Centered Outcomes Research Trust Fund Fee which reverts from $1 to $2 per covered life for policy and plan years ending after September 30, 2013 and before October 1, 2014. This client alert focuses on the Transitional Reinsurance Program ("TRP") Fee which will impose a substantial additional cost on group health plans including self-insured plans beginning January 1, 2014.

    I. The TRP

    The Patient Protection and Affordable Care Act of 2010 directed that a TRP be established in each state to help stabilize premiums for coverage in the individual market for each of the first three years the Health Insurance Marketplaces (or "Exchanges") are operational, i.e., 2014 through 2016 inclusive. To date, only Connecticut and Maryland have established their own TRP. Therefore, the TRP for most group health plans will be established and administered federally by the Department of Health and Human Services ("HHS").

    II. Determining Whether the TRP Fee Applies

    The TRP Fee applies to "contributing entities" which are defined to include both fully-insured and self-insured group health plans. However, certain plans are excepted including dental and vision-only plans, employee assistance programs that do not provide major medical coverage, health reimbursement accounts that are integrated with group health plans, health flexible spending accounts, health savings accounts, and expatriate-only plans. This client alert focuses on self-insured group health plans which have direct responsibility for the TRP Fee.

    III. Calculating the TRP Fee

    The TRP is administered on a calendar-year basis. By November 15 of 2014, 2015, and 2016, as applicable, contributing entities must report to HHS the annual enrollment count of the average number of covered lives of individuals covered by the self-insured group health plan to which the TRP Fee applies ("reinsurance contribution enrollees"). The average number of covered lives may be determined by actual or snapshot counting or on the basis of the data reported on IRS Form 5500. Employers should be aware that each covered life is counted which can include enrolled spouses and dependents of employees as well as persons exercising COBRA continuation rights.

    Within 30 days of submission of the annual enrollment count or by December 15, whichever is later, HHS will notify each contributing entity of the TRP Fee to be paid based on the submitted annual enrollment count. For 2014, the TRP Fee is $5.25 per month per covered life or $63 annually. The TRP Fee for 2015 and 2016 has not yet been set.

    IV. Paying the TRP Fee

    Self-insured group health plans may remit the TRP Fee directly to HHS or may utilize a third party administrator ("TPA") or administrative services only contractor ("ASO"). Whether the TPA or ASO charges a fee for this service is a matter of negotiation between the self-insured plan and the service provider. The self-insured plan bears ultimate responsibility for the TRP Fee even if a TPA or ASO makes the actual remittance to HHS.

    V. Tax and ERISA Considerations

    The IRS has stated that sponsor of a self-insured group health plan that pays the TRP Fee may treat the TRP Fee as an ordinary and necessary business expense, subject to any applicable disallowances or limitations under the Internal Revenue Code. This treatment applies whether the contributions are made directly or through a TPA or ASO. At the same time, the Department of Labor has advised HHS that paying the TRP Fee would constitute a permissible expense of the group health plan for purposes of Title I of ERISA. Of course, these tax and ERISA determinations will depend upon the facts specific to each employer and each self-insured plan.

    VI. Action Items

    While the TRP Fee is not payable until late 2014, employers that sponsor self-insured group health plans can take steps now to enhance their options and possibly reduce their costs with respect to the TRP Fee. Such steps include determining:

    • Which of the employer's self-insured groups health plans are subject to the TRP Fee.
    • Which method of counting covered lives best balances administrative burdens and the projected cost of paying the TRP Fee. Some methods may require counting beginning January 1, 2014.
    • Whether to remit the TRP Fee directly to HHS or to contract with a TPA or ASO to make the remittance. If the latter, negotiations with the TPA or ASO regarding any associated fees may be required.
    • How best to treat the payment of the TRP Fee for tax and ERISA purposes.

    Please note that these determinations can involve legal considerations beyond the scope of this client alert. Employers should consult benefits counsel as they prepare for the assessment for the TRP Fee.