When individual state exchanges begin in 2014, they will be required to provide coverage to high risk individuals. In order to ensure stable premiums and to help with the cost of a high risk pool, PPACA requires that all health plan issuers, including Third Party Administrators (TPAs) on behalf of self-funded plan sponsors, pay a quarterly reinsurance fee to state exchanges to help offset the increased cost. Due to the exception provided in the new regulations, TPAs will not have to pay the fee on behalf of integrated Health Reimbursement Arrangements (HRAs) and health Flexible Spending Accounts (FSAs). Stand-Alone HRAs, however, are subject to the fee unless they are an excepted benefit (providing dental and vision benefits, or meet the definition of a health FSA).
New regulations provide an exception of payment of the reinsurance fee for integrated HRAs, Health Savings Accounts (HSAs), health FSAs, employee assistance programs (EAPs) and wellness programs. The initial regulations indicated that these accounts might be subject to the fee established by PPACA.
New regulations indicate that an HRA integrated with a group health plan “is excluded from reinsurance contributions because it is integrated with major medical coverage,” “an HSA is not major medical coverage because it consists of a fixed amount of funds that are available for both medical and non-medical purposes, and would be excluded from reinsurance contributions,” and “the Affordable Care Act limits the annual amount that may be contributed by an employee to a health FSA to $2,500,” and therefore, “a health FSA is not major medical coverage,” and “would be excluded from reinsurance contributions.”
Final Regulations Issued on Comparative Effectiveness Research (CER) Fees
Section 6301 of the PPACA also created a fund for a new nonprofit corporation to assist in clinical effectiveness research. To aid in the financial support for this endeavor, certain health insurance carriers and health plan sponsors will pay fees based on the average number of lives covered by welfare benefit plans.
The fees go into effect for plan years ending on or after October 1, 2012. That means for a plan year beginning January 1, 2012 that ends December 31, 2012 (which is after October 1, 2012) the reporting for the 2012 plan year would be due in July, 2013.
The fees are $1 per average covered life for the initial plan year and $2 per average covered life for the following year. The fee, indexed each year thereafter, will be determined by the value of national health expenditures. This fee does phase out and will not apply to plan years ending after September 30, 2019.
Which plans are required to pay fees?
CER fees are required for all group health plans including HRAs and some health FSAs unless they consist solely of excepted benefits such as plans that only cover vision or dental expenses.
Health FSAs are only required to pay the fee if 1) the employer does not offer another group health plan and 2) there are employer contributions to the plan with maximum reimbursement greater than two times an employee’s salary reduction election (or if greater, employee’s salary reduction election plus $500). In other words, health FSAs that do not include employer contributions in addition to employee salary reductions would not be required to pay CER fees. Health FSAs that do include employer contributions MAY be required depending on the amount of employer funding and if the employer contributions exceed employees’ salary reduction amounts by more than $500.
HRAs exempt from other regulations would be subject to the CER fee. For instance, an HRA that only covered retirees would be subject to this fee, but those covering dental or vision expenses only would not be. However, EAPs, disease management programs and wellness programs are exempt from paying CER fees.
How are fees calculated?
Fees may be calculated for nonexempt HRAs and health FSAs by counting each participant without regard to spouses and dependents also covered by the plans, if the plan sponsor has no other relevant self-insured plans. Also, if employers have more than one qualifying self-insured plan, they may be considered as one plan so long as all the plans have the same plan year.
Relying on the “one plan” method does have its drawbacks. Let’s say employers sponsor a self-insured health plan and a nonexempt health FSA or HRA. For CER fee purposes, the count would start with the health plan and include all covered lives including the employee, spouse and all dependents. Anyone not enrolled in the employer’s health plan, but participating in nonexempt HRAs or health FSAs, would be counted as one additional covered life.
Who pays the fees?
For self-insured plans the plan sponsor would be liable to pay the fees. Generally, the plan sponsor will be the employer. For fully-insured plans, the insurance carrier will need to pay the fees.
Fees are reported and paid once per year with the submission of Form 720 (Quarterly Federal Excise Tax Return). Fees are due by July 31 of the year following the end of the plan year and must be submitted with the Form 720 filing.
Calculating and Submitting the Fee for Self-Insured Plans:
Plan Administrators can use one of several methods for calculating the average number of lives covered under an applicable self-insured health plan:
The number of lives covered on a date is equal to the sum of (1) the number of participants with self-only coverage on that date; plus (2) the number of participants with coverage other than self-only coverage on the date multiplied by 2.35; or
The number of lives covered on a date equals the actual number of lives covered on the designated date.
For plans offering self-only and other than self-only, covered lives equals the sum of total participants covered at the beginning and the end of the plan year.
The WageWorks Commitment
WageWorks continually works with industry leaders to submit comments on regulations that impact the plans that we administer. With the election over and state exchanges coming into play in 2014, the agencies are working to issue several rounds of new guidance. WageWorks is committed to helping you through these changes and will continue to provide updates to you as new information becomes available.
The information contained in this memo is not intended to be legal, accounting or other professional advice. We assume no liability whatsoever with its use, and these comments are not directed to specific situations.