One of the least noticed provisions of the The Patient Protection and Affordable Care Act (PPACA), sometimes referred to as Obamacare, is a transitional reinsurance fee applicable to 2014 through 2016. The Department of Human Services issued regulations implementing this provision on March 11, 2013. These regulations clarify that although governmental entities are exempt from tax and from most of ERISA, health plans that governmental employers maintain for their employees will be subject to the new fee.
An exception in § 153.400(a)(1)(ii) from the reinsurance contribution requirement applies to health insurance coverage that is not part of an issuer’s commercial book of business. However, the regulations do not treat a governmental health plan as automatically being noncommercial. The relevant language is as follows:
[P]roducts offered by an issuer under Medicare Part C or D would be part of a “governmental” book of business, not a commercial book of business. Similarly, a plan or coverage offered by a Tribe to Tribal members and their spouses and dependents, and other persons of Indian descent closely affiliated with the Tribe in the capacity of the Tribal members as Tribal members (and not in their capacity as current or former employees of the Tribe or their dependents) would not be part of a commercial book of business. But a plan or coverage offered by the Federal government, a State government, or a Tribe to employees (or retirees or dependents) because of a current or former employment relationship would be part of a commercial book of business.
So, what is the transitional reinsurance fee? Essentially, it is a fee collected by the federal government and paid to insurance companies to ease their transition to providing health coverage to all, regardless of their health status. It is calculated based on the cost of providing certain subsidies to insurance companies for individuals with certain high risk health conditions, plus the administrative expense to the federal government for collecting and distributing the money. The amount will be $63 per enrollee for 2014, and will diminish each year until 2016. It will end after 2016.
Self-insured group health plans are excluded from receiving reinsurance payments. Nevertheless, the regulations conclude that there is no basis for lowering the fee for them or excluding them from the fee.
The fee is imposed at the plan level in the case of a self-insured plan. However, to the extent that the plan uses a third-party administrator (TPA), the plan can contract with the TPA to pay the fee.
It is unclear what the penalty would be for noncompliance in the case of a self-insured governmental plan. Private plans are subject to an excise tax for failure to comply. In the case of an insured governmental plan, the penalty would fall on the insurer. However, imposition of a tax on a governmental employer would raise Constitutional issues. The regulations do not discuss the penalty issue.