Since the Affordable Care Act (ACA) was passed into law in 2010, employers who offer employee health benefits have absorbed additional costs to provide quality health-care coverage to their employees. These costs have taken the form of expanded eligibility for adult dependents, routine and preventive services covered at no member cost share for non-grandfathered plans, […]
Since the Affordable Care Act (ACA) was passed into law in 2010, employers who offer employee health benefits have absorbed additional costs to provide quality health-care coverage to their employees.
These costs have taken the form of expanded eligibility for adult dependents, routine and preventive services covered at no member cost share for non-grandfathered plans, and removal of lifetime and annual limits on essential benefits. In addition to increased employer-plan costs associated with expanded benefits, ACA also imposed three significant taxes and fees on employer-sponsored health care to further the goals of the health-care reform law.
Employers offering health coverage are subject to the fees annually, but the rates are variable and are determined by eligible membership, among other factors. For 2015, employers will need to be prepared for remitting payment for the Patient Centered Outcomes Research Institute (PCORI) fee, the Transitional Reinsurance Fee, and fully insured plans will continue to feel the impact of the health-insurance tax.
In 2014, ACA’s health-insurance tax went into effect for fully insured health plans. Self-funded group health plans are not subject to the tax, nor are voluntary employee beneficiary associations. Unlike the PCORI and Transitional Reinsurance fees that impose a fixed amount per covered member, the health-insurance tax is defined as a fixed amount of revenue to be collected annually on the entire health-insurance industry.
In 2014, the tax will raise $8 billion. That amount will increase to $14.3 billion in 2018. The total annual amount will be allocated across all insurance carriers in proportion to their market share as measured by total premiums.
While insurance-carrier profits are expected to increase because of increased health-plan enrollment under ACA, the funds needed to pay these annual fees will be incurred through increased costs passed on to policyholders, whether in the form of higher premiums, or possibly higher out-of-pocket costs or reduced benefits. It is projected that in order to accommodate the tax, the average premiums for employees in fully insured, employer-sponsored plans in 2014 have increased by $77 for single coverage and $266 for family coverage. These amounts are expected to increase by 2018 to almost an additional $200 for single coverage and an additional $500 for family coverage. The tax is not deductible relative to federal income.
The Transitional Reinsurance Fee was established under ACA to help fund the high-risk pool that was expected to enroll in ACA’s marketplace exchanges. The fees have been scheduled to be levied on both fully insured and self-funded plans for the 2014, 2015, and 2016 plan years. The fees for 2015 will be reduced to $44 per covered life, from the $63 per-covered-life fee that was implemented in 2014. Under the proposed regulations, about $8.025 billion will be collected for benefit-year 2015.
The final regulations issued by HHS confirm that the fee will be collected in two parts each year. For the 2014 fee of $63 per covered life, the first installment of $52.50 per covered life will be due in January 2015 and the second installment of $10.50 per covered life will be due later in 2015. The first installment will be used to fund reinsurance payments and administrative expenses, while the second installment will be used to fund the Treasury Department’s administrative costs associated with the Early Retiree Reinsurance Program (ERRP) which was established in 2010 and terminated in 2012 when available reimbursement dollars for employers were exhausted.
Insurance carriers will remit payment on behalf of fully insured plans. To accommodate the fee, carriers have factored in the additional cost to their annual premium increases. Self-funded group health plans are responsible for payment of the transitional reinsurance fee; however a third-party administrator (TPA) may remit payment of the plan’s behalf. To issue payment, self-funded plans and insurers should report to HHS the number of covered lives enrolled in major medical coverage by Nov. 15. HHS will then notify self-funded plans and insurers of the final fee amounts due, which must be remitted within 30 days.
ACA has granted an exception to the mandate for 2015 and 2016 for self-insured, self-administered group health plans that do not utilize a TPA for processing medical claims. While only a small number of employers manage a self-funded, self-administered plan, some of those groups eligible for the exception are likely to include collectively bargained multiemployer plans.
PCORI tax
The Patient Centered Outcomes Research Institute was created under ACA in order to research, evaluate, and compare health outcomes, and the clinical effectiveness, risks, and benefits of two or more medical treatments and/or services. Employers have been subject to the tax for the past two benefit-plan years, beginning with the 2012 benefit-plan year, and will continue paying for seven years through the 2019 benefit plan year. In the first year of the mandate, employers were subject to a tax of $1 per covered individual. That fee increased to $2 for the 2013 plan year and is expected to increase by a rate of medical inflation beyond the 2013 plan year.
In compliance with IRS guidelines, insurance carriers are responsible for remitting payment of the fee for fully insured plans, and the employer is responsible for remitting payment of the fee for self-funded plans. For fully insured plans, the cost of the PCORI fee has been factored in to the carrier’s annual premium-equivalent rates. The fee is treated like an excise tax by the IRS, in that it is to be incorporated into the overall cost of offering employee health coverage. To pay the fee, employers or insurance carriers must remit payment by filing IRS form 720 by July 31 of the calendar year immediately following the last day of the plan year.
It is projected that 52.4 percent of ACA’s total financing will come in the form of taxes and fees (including those levied per the employer-mandate provision), 6.5 percent of which is levied on employers. While the short- and long-term impact from an individual employer perspective will vary, it is important for employers to work with their TPA or insurance carrier now to project the long-term budgetary impact of these provisions on their plans, so that proper cost-control measures can be put into place sooner rather than later to offset potentially significant plan cost increases.
Vanessa Flynn is vice president, client services at POMCO Group