New fees and taxes under ACA
Health insurance premiums may increase due to many new fees and taxes
The new taxes and fees scheduled to begin on January 1, 2014, as part of the health reform law will impact both fully insured and self-funded plans. Companies will be affected differently based on their group size (small vs. large) and if they are fully insured or self-funded.
If you have a self-funded medical plan, you will submit the applicable health reform fees directly to the government. Companies with fully insured health plans will see the new taxes and fees prorated into their premiums. The nominal Patient-Centered Outcomes Research Institute (PCORI) Fee is included in the premiums. Your insurance carrier will start progressively incorporating the Transitional Reinsurance Fee, the Insurer Fee and the Risk Adjustment Fee if applicable, as renewals or new business cases begin and state regulatory approvals are received. The fees will be prorated and spread over 12 months.
How much will group premiums increase?
For fully insured policies, the cumulative financial impact of the health reform fees in 2014, based on the government rule and industry analysis shows an increase in the premium between 3 to 4 percent. For self-funded plan sponsors, it will be about $5 per member per month. This amount will vary based on the specific premium because some of the fees are a percent of premiums.
Patient-centered Outcomes Research Institute Fee
The PCORI Fee affects fully insured and self-funded plans. The fee funds research that evaluates and compares health outcomes, clinical effectiveness, risks and benefits of medical treatments and services.
- Effective 2012-2019, health insurance issuers and employers sponsoring self-funded group health plans must pay $1 per member per year in year one. The fee increases to $2 per member per year in the second year and is indexed to medical inï¬‚ation thereafter.
- In the case of fully insured coverage, your insurance carrier will ï¬le and pay the fee which will be rolled into the premium.
- Self-funded customers must ï¬le Form 720 and pay the fee directly to the Internal Revenue Service. Third parties may not pay the fee or ï¬le the form on behalf of self-funded plans. The fee is due by July 31 of the calendar year immediately following the last day of the plan year. The 2013,fee must be paid by July 31, 2014.
The PCORI Fee applies to certain "speciï¬ed health insurance policies and includes medical policies, retiree-only policies, any accident or health insurance policy (including a policy under a group health beneï¬t plan) issued to individuals residing in the United States. What is excluded from the PCORI Fee? "Excepted beneï¬ts, as deï¬ned under HIPAA, such as stand-alone vision or dental plans, FSA, HRA, EAP, Expatriate Coverage, Stop loss, Medicare, Medicaid, CHIP, Tricare and Federal programs to provide care to Indian Tribes.
Health Insurance Premium Tax
The Insurer Fee or Health Insurance Provider Fee, applies to health insurance issuers and impacts fully insured customers only. This new tax will fund premium tax subsidies for low-income individuals and families who purchase health insurance through the Exchange, also called Health Insurance Marketplaces.
- The health insurance tax is an annual, permanent fee beginning in 2014. The amount is determined by the market share of the health insurance issuer. Industry sources have estimated the impact of the fee during the first year to be about 2.5 percent of the total premium.
- For the three years of the fee, the average number of covered lives must be submitted to HHS by Nov. 15, and HHS will issue the amount to be paid by Dec. 15.
- Your insurance carrier will collect the Insurer Fee through premium rates, when approved by the state.
- The new fee is expected to total $8 billion in 2014 from affected issuers, increasing to $14.3 billion in 2018, and increasing by the rate of premium growth thereafter.
Transitional Reinsurance Fee
The Transitional Reinsurance Fee impacts both fully insured and self-funded plans. The fees are distributed to health insurance issuers in the non-grandfathered individual market that disproportionately attract individuals at risk for high medical costs. The intent is to spread the financial risk across all issuers to provide greater financial stability.
- The fee is temporary and is collected for years 2014-2016.
- The Transitional Reinsurance Fee is assessed on a per capita basis (all covered lives “ employees, spouses and dependents).
- The Reinsurance Fee is about $5 per covered member per month for the first year. States may also collect fees if they establish their own reinsurance program. In 2014, no states will be adding reinsurance fees.
- For fully insured plans, your insurance carrier will collect the Reinsurance Fee through premium rates, when approved by the state. Self-funded plans fund and remit the fee.
- The health reform law specifies the total amounts of the Reinsurance Fee that must be collected: $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016, totaling $25 billion.
This $63 tax will be assessed on nearly,every health insurance plan,enrollee for the next three years. The money collected will be used to help insurers in the individual market with high-cost cases,that reach beyond a catastrophic cap. The fund would reimburse insurers for 80 percent of costs for claims between $60,000 and $250,000 per person. This is one of several provisions in the Affordable Care Act that is designed to smooth the transition of millions of Americans into the individual market and keep insurance affordable. Enrollees in the individual market tend to be sicker and cost more than enrollees in other plans.
Because these marketplaces are so new, insurers were not sure if the pool of enrollees would be balanced with enough healthy individuals to guarantee that the companies would not lose money. Without the reinsurance tax, individual market premiums would be about 10 to 15 percent higher to cover that concern according to the Department of Health and Human Services.
Risk Adjustment Fee
The Risk Adjustment Fee is assessed on issuers of risk-adjusted plans in the non-grandfathered individual and small group markets, whether in or out of the Exchanges, to help fund the administrative costs of running the Risk Adjustment Program. The Risk Adjustment Program is intended to protect health insurance issuers of risk-adjusted plans,against adverse selection by redistributing premiums from plans with low-risk populations to plans with high-risk populations. In other words, it helps level the playing field.,
- The cost is estimated to be about $1 per member per year.
- The modest fee will be rolled into the premium, not called out separately on invoices.
- The Risk Adjustment Fee is permanent and begins in 2014.
An overview of PPACA for employers
Will my business be affected by ACA?
How PPACA effects small employers