Written by Alden J. Bianchi
The last few weeks have produced a regulatory frenzy under various provisions of the Affordable Care Act affecting employers:
- On February 12, the Treasury Department and the IRS issued final regulations implementing the Act’s employer shared responsibility rules (discussed in an earlier post available here);
- On February 24, the Department of Health and Human Services, the Department of Labor and the Treasury Department/IRS issued final regulations under the Act’s rules imposing a ban on waiting periods of more than 90 days (discussed in an earlier post available here);
- On March 10, the Treasury Department and the IRS issued final regulations governing reporting by providers of minimum essential health coverage (under Internal Revenue Code section 6055) (discussed in an earlier post available here); and
- Also on March 10, the Treasury Department and the IRS issued final regulations governing reporting by applicable large employers on health insurance coverage offered under employer-sponsored plans (Internal Revenue Code section 6056) (discussed in an earlier post available here).
Thus, employers and other interested observers might be forgiven if they missed another set of final regulations issued by the Department of Health and Human Services and published in the Federal Register on March 11 relating to “notice of benefit and payment parameters for 2015." While this rule on its face might appear to be of interest to public exchanges and insurance carriers, it nevertheless includes a handful of items that concern employers.
The notice of benefit and payment parameters final regulation is a massive rule that covers, among other topics:
- risk adjustment, reinsurance and risk corridors programs;
- cost sharing limits;
- cost-sharing reduction payments;
- timing for states to decide whether to operate their own exchanges;
- user fees for Federally-facilitated Exchanges (FFEs);
- composite premiums in the Small Business Health Options Program (SHOP);
- privacy and security of personally identifiable information;
- the 2015 open enrollment period;
- the actuarial value calculator;
- the annual limitation in cost sharing for stand-alone dental plans;
- meaningful difference standard for qualified health plans (QHPs) offered through an FFE; and
- patient safety standards for (QHPs).
Set out below are a handful of items of particular interest to employers:
(1) “Composite premiums” for small groups
A key feature of the Act is its reform of insurance underwriting standards. The Act significantly limits the ability of carriers to deny coverage or charge higher premiums to individuals and groups with higher than average health risks. Beginning in 2014, when setting premiums carriers may take into account only age, tobacco use, geographic location, and family size. (Before the Act, carriers routinely took into account factors such as health status and claims experience, age, gender, group size, industry and occupation, geographic location, duration of coverage, and wellness.) When setting rates for small groups, carriers are free to charge different premiums for employees of different ages—a practice that was rare under prior law. The final notice of benefit and payment parameters regulations make clear that carriers are not required to charge age-based rates. Rather, they are free to calculate premiums for the individual members of a small group (excluding tobacco users), but then apply a single, average—or “composite”—premium rate for all covered employees and their beneficiaries. Composite premiums must be established at the start of the policy year, and they may be changed during the course of the year as new employees are added or current employees terminate. Carriers that choose to offer composite rates must offer these rates to all employers in a state small-group market.
(2) Transitional reinsurance fees—amounts and payment
The transitional reinsurance fee is imposed on both fully-insured and self-funded group health plans in 2014, 2015 and 2016. Its purpose is to raise $25 billion to at least in part reimburse carriers that offer coverage in the individual and small group markets for higher than anticipated claims. Only plans that provide “major medical” coverage are subject to the transitional reinsurance fee. Plans that provide excepted benefits (e.g., stand-alone dental and vision benefits) are exempt, as are products issued under a “governmental” book of business (e.g., Medicare Part C or D).
The final regulations confirm that the 2014 assessment of $63 per enrollee must be paid in two installments: $52.50 per enrollee (due January 2015) and $10.50 (due December 2015). For 2015, the reinsurance fee will be $44 per enrollee, also paid in two installments of $33 and $11, respectively. The 2016 transitional reinsurance fee amount has not yet been determined.
(3) Transitional reinsurance fee—exemption for self-administered, self-insured plans
For 2014, under the rules as originally promulgated, all self-funded plans were subject to the transitional reinsurance fee, irrespective of whether they were self-administered or administered by a third party. Generally and historically, self-funded plans maintained by employers have relied on the services of independent third party administrators to handle day-to-day plan maintenance and operation. In contrast, multiemployer plans that are commonly encountered in the collective bargaining setting are typically self-administered. The final regulations confirm that, for 2015 and 2016, self-insured plans that self-administer claims (principally multiemployer plans) are exempt from the reinsurance fee. (For this purpose, plans that contract with unrelated third party provider networks, outsource the administration of pharmacy benefits or excepted benefits, or use only de minimis limited third party services may nevertheless qualify as self-administered.) This change is a boon to multiemployer plans at the (marginal) expense of single employer plans.
(4) Application of excess transitional reinsurance fees
The transitional reinsurance fee amounts are merely estimates of the amounts that the Department of Health and Human Services thinks will be necessary to raise the $25 billion amount specified in the statute. It is possible, however, that revenues from these fees might exceed that amount. According to the final regulations, any excess will be applied to beef-up the reinsurance program based on a formula that benefits carriers rather than the employers that pay the fees in the first instance. (The final regulations also signal the Department of Health and Human Services’ intent to audit compliance with the transitional reinsurance fee rules.)
(5) Adjustments to out-of-pocket cost-sharing limits
The Act imposes two sets of cost sharing limits commencing in 2014. The first, which applies to all group health plans, imposes aggregate caps (referred to as “out-of-pocket maximums” or “OOPM”) on co-pays, deductibles, and coinsurance, which are the same as those imposed on high deductible health plans (HDHPs), i.e., $6,350 for singles and $12,700 for families in 2014, indexed for later years. Applying the indexation methodology specified by the Act, the final regulations set the out-of-pocket maximums for 2015 at $6,600 for self-only coverage and $13,200 for families. The indexation methodology that applies to HDHPs is not the same as the indexation methodology that applies to the Act’s limits on OOPMs. Thus, the two will diverge in future years.
The second cost sharing limit, which applies only to health insurance policies issued in the individual and small group markets, governs annual deductibles ($2,000 for self-only coverage; $4,000 for family coverage in 2014). The final regulation set the 2015 amounts at $2,050 for self-only coverage and $4,100 for family coverage.