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News Flash March 11 2014 - Final Regulations on Modifications to Transitional Reinsurance Program for 2015


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  • 1. News Flash: March 11, 2014 - Final Regulations on Modifications to Transitional Reinsurance Program for 2015 The Patient Protection and Affordable Care Act (PPACA) provides for three risk-spreading mechanisms to mitigate the potential impact of adverse selection and to stabilize premiums for coverage in the individual health insurance market: a risk corridor, a risk adjustment program and the transitional reinsurance program. The Department of Health and Human Services (HHS) recently issued final regulations that modify PPACA’s premium stabilization programs, including the transitional reinsurance program, for 2015. Background Starting in 2014, due to insurance reform under PPACA, health coverage will be available to anyone, regardless of health status, either in the individual market or through the small group market. This unfettered availability may result in adverse selection (i.e., the tendency for high-risk individuals to buy health insurance and low-risk individuals to defer purchase of health insurance), which in turn would result in fewer healthy enrollees. Such adverse selection may ultimately cause premiums to increase in any market, but especially in the individual and small group markets. In order to stabilize these increasing premiums, especially in the first three years (2014-2016) of operation of state insurance exchanges, PPACA provides for the implementation of a transitional reinsurance program. Reinsurance is basically buying protection against the possibility that some rare set of circumstances (such as high claim cost) might produce losses that an insurer is unable to fund on its own. Thus, the reinsurance program under PPACA is designed to reduce the uncertainty of insurance risks in the individual market by making payments for high-cost claims. According to HHS guidance, the “reinsurance program is designed to protect against insurers’ potential perceived need to raise premiums due to the implementation of the 2014 market reform rules, specifically guaranteed availability.” The reinsurance program will be funded with payments to an “applicable reinsurance entity” from health insurance issuers and certain plan administrators on behalf of group health plans. The program is scheduled to run for a three-year period beginning January 1, 2014. Additional information about the reinsurance program can be found in Willis’ Alert, January 2013, "HHS Issues Additional Guidance on Transitional Reinsurance Program." Final Regulations Highlights The recently published final regulations make several changes to the reinsurance program. Highlights of these changes include: • For 2015 and 2016 (the change does not apply to the 2014 benefit year), self-insured group health plans that do not use a third party administrator (TPA) for claims payment, claims adjudication or enrollment (referred to as “self-insured, self-administered plans”) would not be treated as contributing entities and would be exempt from making reinsurance contributions. A self-insured plan can qualify for this exemption even if it outsources some plan administrative functions, provided it outsources the function to an unrelated third party and meets one or more of the following criteria:  Outsourcing is limited to pharmacy benefits or excepted benefits (like dental or vision);
  • 2.  Only a de minimis amount of core administrative services for benefits other than pharmacy or excepted benefits is outsourced. A de minimis amount is up to 5% of either the amount or value of the enrollment or claims processing transactions for the outsourced benefits; or  The plan “leases” a network and also obtains provider network development, claims repricing and similar services. Based on this guidance, a self-funded plan that is otherwise self-administered but outsources its substance use disorder benefits will not receive this exemption if the substance use disorder benefits exceed the de minimis limit. Since most self-insured plans use a TPA to administer their health plans, it is expected that this change will have very little effect on those plans generally. • The final rules add a definition of major medical coverage that excludes (from the definition and thus the contribution requirement) coverage that does not provide minimum value (having a 60% actuarial value). Major medical coverage also includes an individual or small group market plan (subject to actuarial value requirements) and a catastrophic plan. • The annual contribution amount for 2015 is $44 per covered life (it is $63 for 2014). Contributions will be paid in two installments. The first installment reflects the actual reinsurance contribution (plus HHS’ administrative costs) and the second installment reflects payments allocated to the U.S. Treasury. The first payment will be invoiced by December 15 of the benefit year (e.g., calendar year for which coverage is provided) and the second installment will be invoiced in the fourth quarter of the following calendar year. Both installments will be based on the same enrollment count and payments for each installment are due within 30 days after the invoice date. The installments payable for 2014 will be $52.50 and $10.50 per covered life, and the installments payable for 2015 will be $33 and $11 per covered life. Lastly, HHS also indicated that it anticipated conducting targeted audits of contributing entities, beginning with the contributions made for the 2014 plan year. The information in this publication is not intended as legal or tax advice and has been prepared solely for informational purposes. You may wish to consult your attorney or tax adviser regarding issues raised in this publication.