As part of the Patient Protection and Affordable Care Act (ACA), the U.S. Department of Health and Human Services (HHS) recently released proposed regulations regarding the estimated amount of annual contributions that are required to be paid to HHS from employer-sponsored group health plans to finance state transitional reinsurance programs.  The reinsurance programs are intended to help stabilize premiums for coverage in the individual market during the first three years the state health insurance exchanges are operational (2014 through 2016).  HHS is estimating the annual contribution rate for 2014 will be $63 per covered life (employees and their dependents).  This will undoubtedly impact the overall cost of providing coverage under an employer-sponsored group health plan and should be taken into account by employers for purposes of estimating cost trends.

As part of the Patient Protection and Affordable Care Act (ACA), the U.S. Department of Health and Human Services (HHS) released proposed regulations addressing the benefit and payment parameters for certain health insurance market reforms effective in CY 2014.  Among the proposals is the estimated amount of annual contributions that will be paid to HHS from employer-sponsored group health plans to finance state transitional insurance programs.

Estimated Contributions by Group Health Plans Based on Covered Individuals

Under Section 1341 of the ACA, each state may establish a temporary reinsurance program to help stabilize premiums for coverage in the individual market during the first three years that the state health insurance exchanges are operational (2014 through 2016).  If a state chooses not to establish a transitional reinsurance program, HHS shall establish a reinsurance program for the state.  The contributions by group health plans in support of a reinsurance program will be assessed on both health insurance issuers (on behalf of fully insured group health plans) and third-party administrators (on behalf of self-insured group health plans). 

HHS is estimating the annual contribution rate will be $63 per covered life, or $5.25 per covered life, per month in 2014.  A covered life would not be based on the number of employees participating in a group health plan, but rather on all individuals covered under the plan.  For example, a family of four would be four covered lives.  Thus, the annual contribution of an employer with 5,000 covered lives would be $315,000 per year.  These payments are tax deductible to employers as an ordinary and necessary business expense.

Determining Who Is a Covered Individual

Contributing entities—i.e., health insurers and third-party administrators—will be permitted to use several different methods for determining enrollment; these methods are based on those previously allowed under the guidance issued to implement the assessments for the Patient-Centered Outcomes Research Institute program. 

The guidance clarified that the contributions would only be required on behalf of employer provided “major medical coverage” and not for “excepted benefits.”  Thus flexible spending accounts, health savings accounts (HSAs), health reimbursement arrangements (HRAs), employee assistance plans, wellness programs, disease management programs (to the extent they do not provide major medical coverage) and self-insured group health plan or health insurance coverage that consists solely of excepted benefits would not be subject to the assessment.  However, assessments would be required for the group health plan providing major medical coverage that is typically associated with an HSA or HRA.

As to group health plans that coordinate with Medicare, and when the employer-provided coverage is primary, the employer plan would only be required to make transitional reinsurance program contributions.  This scenario would occur when an individual is still actively employed by an employer, and covered under the employer’s plan and Medicare (i.e., working-aged).  The employer’s plan would not however be responsible for making reinsurance contributions for retirees covered under an employer plan and Medicare when Medicare is the primary plan and the employer’s plan is secondary.  This scenario would occur when an individual is no longer actively employed by an employer, and covered under the employer’s plan and Medicare.

HHS is seeking comments on these proposals and whether it has authority to defer until 2016 a portion of the premium that is to be paid to the U.S. Treasury to partially offset the government’s cost for the Early Retiree Reinsurance Program. 

IRS Guidance on the Medicare Wage Tax

The Internal Revenue Service (IRS) also just issued proposed regulations concerning an additional Medicare tax to be imposed on the wages and other compensation of certain individual taxpayers above a threshold amount to be determined at a later date.  The proposed rule generally addresses implementation of the tax, a return to be filed by employers and the process for addressing under- and over-payments of the tax and associated refund requests.  A hearing has been schedule for April 4, 2013, and comments are due to the IRS by March 5, 2013.

In addition, the IRS issued a notice of proposed rulemaking implementing the net investment income tax, enacted as a revenue provision of ACA.  The regulations, effective for taxable years beginning after December 31, 2012, impose a 3.8 percent net investment income tax on certain individuals, estates and trusts.