On March 5, 2014, the Department of Health and Human Services released a Final Rule addressing, among other things, transitional reinsurance fees payable in the 2014 through 2016 benefit years.
By way of background, under the Affordable Care Act (“ACA”), a transitional reinsurance fee applies to most group health plans. The transitional reinsurance fee is a temporary per capita fee charged to health insurance issuers and third party administrators of self-insured plans that is to be used to help stabilize premiums for coverage in the individual market. The fee is $63 and $44 per covered life for 2014 and 2015, respectively. (The fee for 2016 has not yet been announced.)
Of particular note is that the Final Rule exempted self-insured and self-administered plans from the transitional reinsurance fee for the 2015 and 2016 benefit years. This exemption could apply to any self-insured and self-administered plan, but it is generally perceived that larger multiemployer plans are most likely to satisfy these requirements.
The Final Rule also helped answer the key question that was left open by the Proposed Rule – When is a plan is considered self-administered? Specifically, the Final Rule provides the following guidance:
- A self-insured plan is not considered self-administered if it uses a third party administrator in connection with its core functions, which are defined to include claims processing or adjudication (including the management of internal appeals) and plan enrollment.
- However, a self-insured plan can still be considered self-administered if it only uses the third party administrator with respect to pharmacy benefits or ACA-excepted benefits.
- A plan is not considered to be using a third party administrator if it outsources a de miminis amount of its non-pharmacy, non-ACA-excepted benefits. Thus, even for its core functions, a plan can maintain its exemption where it uses an unrelated third party for up to 5% of claims processing, claims adjudication, or plan enrollment. The 5% test is measured based on either the number of transactions processed by the third party for non-pharmacy and non-ACA-excepted benefits or the volume of the claims processing and adjudication and plan enrollment services provided by the third party. Based on the preamble to the Final Rule, it appears that the latter test focuses on the cost of the outsourcing compared to the cost of outsourcing plus the fully loaded (including allocated overhead and fixed costs) cost borne by the self-insured plan.
- A plan is also not considered to be using a third party administrator merely because it leases its network and has the network provider reprice its claims.
We expect that the benefits community will likely view the Final Rule as a bit of a mixed blessing.
From the multiemployer plan perspective, self-insured and self-administered plans are no doubt pleased to have relief in 2015 and 2016 and to learn that the use of a pharmacy benefit manager will not impact that relief. However, many of them have questioned HHS’s authority to continue to apply the transitional reinsurance fee to self-insured, self-administered plans in 2014 where it appears to have acknowledged that the better reading of the statute is that the fee does not apply. In addition, plans that are otherwise self-administered but outsource their mental health and chemical dependency benefits may be disappointed to learn that they will not be able to take advantage of the exemption if those claims represent more than 5% of the total.
On the other side of the ledger, sponsors of plans that cannot take advantage of the exemption (which is the overwhelming majority of single employer plans as well as self-insured multiemployer plans that are not self-administered) have been critical of any exemption at all, fearing that the costs of transitional reinsurance will be higher for them as a result of this exemption. In response, HHS stated that it anticipates that the exemption will have a small effect in 2015 because few entities will qualify for the exemption. However, it also acknowledged that it did not receive the quantitative information necessary to refine its estimate of the number of plans impacted.