By Josie Martinez
Senior Partner and Legal Counsel
EBS Capstone, A UBA Partner Firm
The goal of health care reform is health care for all… but at what cost? By 2015, businesses with 100 or more full-time or full-time equivalent (FTE) employees will be at risk for financial penalties (the so-called “employer shared responsibility assessments”) if they do not offer health coverage to full-time employees. The same fate follows in 2016 for large employers with 50 to 99 FTEs. We are all well aware of the “no offer” and “insufficient offer” assessments that could be applied to employers that do not offer affordable, minimum value coverage to full-time employees, and most of us have already been advising clients on penalty avoidance strategies for many months. Meanwhile, business owners nationwide struggle with weighing the financial aspects of providing such coverage or paying the penalties. A recent survey suggests that only 28 percent of companies that employ a large number of low-income workers offer health benefits.
There are other costs to consider as well. In addition to the employer shared responsibility assessments, various other fees are being felt by employers. These fees are expected to ultimately result in higher premiums and could undermine the core principle of affordability in the Patient Protection and Affordable Care Act (PPACA) that is meant to provide basic health protections for all Americans. Over the next several years, group health plans may be required to absorb the costs of up to four new fees. These fees imposed by PPACA on insurers will inevitably trickle down to increase rates in the coming years. In a recent meeting presented by a major national health insurance carrier, regarding “State and Federal Reform Impact,” it became clear that at least three new assessments/fees imposed on carriers will affect employers’ renewal rates in the future and ultimately their bottom line.
- Reinsurance Assessment – This per capita fee on medical plans will fund a three-year reinsurance program designed to reimburse companies that insure high-cost individuals in the individual health insurance market. The total amounts to be assessed are $12 billion in 2014, $8 billion in 2015, and $5 billion in 2016. The estimated fee is approximately $63 per year ($5.25 per month) per covered individual in the first year; however, fees are expected to decrease in subsequent years. The assessment applies to both insured and self-funded plans. Insurance providers will pay the fee for insured plans while third-party administrators may pay the fee on behalf of self-funded plans. The fee is collected each year from 2014-2016 and the first payment is due January 15, 2015, for the 2014 benefit year. Membership counts for 2014 must be submitted to HHS by Nov. 15, 2014, based on the first nine months of the year. We expect this same schedule in 2015 and 2016.
- Comparative Effectiveness Research Fee (CERF) – This is an annual fee imposed on all insured and self-insured plans. The goal of the research is to determine which of two or more treatments works best when applied to patients, thereby comparing different types of therapy against each other. CERF will be charged to health plans to help fund the research that will be conducted by the Patient Centered Outcomes Research Institute, a nonprofit organization established by PPACA. The initial annual fee is $1 per year per health plan member (includes dependents). The annual charge increases to $2 per member the following year and then increases annually with inflation after that until it ends in 2019. Insurance providers will pay the fee on behalf of insured plans, while employers with self-funded plans will need to determine their liability and account for this fee in their own reporting. For many plans, the first payments were due in July 2013.
- Health Insurance Industry Fee – This annual fee impacts fully insured plans. The estimated cost of this tax will be $8 billion for 2014 and eventually increase to $14.3 billion by 2018. The tax is divided among health insurers and will likely be passed on to plan sponsors as an addition to premium. The Health Insurance Industry Fee has a much greater potential financial impact than either of the other two taxes because it is intended to help fund the cost-generating provisions of the PPACA. The fee will be divided among health insurance carriers based on each carrier’s share of the overall premium base and will only be assessed relative to insured health plans, inclusive of medical, dental, and vision plans. Self-funded health plans and associated stop loss premium will not be included in the premium base. The cost impact of the fee is expected to be in the range of 2 percent to 2.5 percent of premium in 2014, increasing to 3 percent to 4 percent of premium in later years. Insurance companies will likely begin to reflect this additional cost in their premium rates in 2013 and/or 2014. Importantly, this fee does not sunset.
- Cadillac Tax – A 40 percent excise tax will be assessed on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for other than individual coverage) beginning in 2018. Under the current regulations, the cost of health coverage includes employer contributions to HRAs, as well as employer plus employee pre-tax contributions to FSAs and HSAs. Health insurance issuers and sponsors of self-funded group health plans must pay the tax on any dollar amount beyond the caps that is considered “excess” health spending. Note: There are certain adjustments built into the thresholds that may apply by 2018. Also, the thresholds may increase for certain plans pursuant to age and gender adjustments.
These new fees are supposedly intended to raise revenues that will support the individual insurance market, help fund the state exchanges, and assist with conducting research for more effective treatments. However, they will also dramatically impact group health plan premiums and could spur many employers to drop their group health plan sponsorship, pushing more employees into the individual market. In anticipation of what lies ahead, it behooves us to work proactively with employers well before the effective dates so they can plan their finances accordingly rather than be blindsided by unwelcome surprises.