CMS issues final rule on reinsurance program
March 14, 2013
On March 1, 2013, the Centers for Medicare and Medicaid Services (CMS) issued a final rule on the reinsurance program. This rule is significantly different from the reinsurance program guidance issued on March 16, 2012.
The summary below highlights the current reinsurance contribution and payment rules.
What is reinsurance?
The transitional reinsurance fee funds the transitional reinsurance program. This is a temporary program in place from 2014-2016 that will subsidize individual market coverage by reimbursing health plan issuers for a portion of high claim costs. This program applies to coverage purchased on and off the Marketplace.
What is the reinsurance fee rate?
The reinsurance contribution rate for 2014 will be $5.25 per member per month ($63 per member per year). CMS estimates that this contribution rate will raise $12.02 billion ($10 billion for reinsurance, $2 billion for the U.S. Treasury not for reinsurance, as required by statute and $20.3 million for reinsurance administrative costs).
Who is responsible for paying the fee?
Health plan issuers are responsible for paying this fee annually to the Department of Health and Human Services (HHS). However, for self-insured group health plans, the plan sponsor is responsible for paying this fee to HHS.
Who is eligible to receive reinsurance payments?
Reinsurance payments only apply to eligible non-grandfathered individual market coverage during 2014-2016. Individual market coverage is considered reinsurance eligible when certain 2014 insurance market reforms apply to the coverage. Examples of market reforms include: guaranteed issue, guaranteed renewal, modified community rating, risk pooling, essential health benefits, actuarial value metal level and cost-sharing limitation provisions.
Though the program is intended to end after the 2016 calendar year payments are made, if any funds remain in the program they will carry over into 2017.
What are the payment parameters?
As stated in the proposed rule, payment parameters for 2014 will be a $60,000 attachment point, 80 percent coinsurance rate and a $250,000 reinsurance cap, which CMS estimates will lead to $10 billion in reinsurance payments nationwide.
This means that the reinsurance program will pay for 80 percent of an issuer’s claims costs between $60,000 and $250,000 for a specific enrollee. For example, if an issuer were to pay $150,000 in claims costs for an enrollee, the issuer would receive $72,000 from the reinsurance fund [($150,000 claim cost - $60,000 attachment point) x 80 percent coinsurance rate].
Health plans issuing individual market coverage must consider their expected receipt of reinsurance payments when submitting individual market rate filings for 2014.
How will HHS distribute payments?
HHS will distribute reinsurance payments to issuers nationally based on their requests for reinsurance that fit the above parameters.
What if the program is overfunded or underfunded?
If reinsurance program payment requests exceed actual contributions received, HHS will pro rata reduce reinsurance payments among issuers.
If payment requests are less than actual contributions received, HHS will carry forward unused amounts to the subsequent benefit year.
Issuers of reinsurance-eligible plans must submit requests for payment no later than April 30 of the year following the benefit year (e.g., April 30, 2015 for the 2014 benefit year).
HHS will notify issuers of reinsurance payment amounts by June 30, but HHS has not yet committed to a payment deadline for itself. HHS intends to disclose the current status of reinsurance payment requests on a quarterly basis during each benefit year.
Are reinsurance contributions tax-deductible?
Yes. Reinsurance contributions are tax-deductible.
Will issuers be required to create unique identifiers that hide the enrollees’ personally identifiable information?
Issuers of reinsurance-eligible plans must establish a unique identification number for each enrollee. This masked identification number must be maintained for an enrollee across all enrollments or plans the issuer maintains within the state, for the applicable benefit year. In essence, the identification number will follow the enrollee.
The masked enrollee identification number cannot include any personally identifiable information.
Can a state operate the reinsurance program?
States can establish and run their own reinsurance program, although certain aspects cannot vary from the federal structure, such as the national reinsurance fee amount and payment parameters. States may have additional supplemental reinsurance parameters.
In 2014, Michigan will defer to HHS to run the reinsurance program. Nationwide, only Maryland and Connecticut have informed HHS of their interest in running a state-based reinsurance program in 2014.
The information in this document is based on preliminary review of the national health care reform legislation and is not intended to impart legal advice. The federal government continues to issue guidance on how the provisions of national health reform should be interpreted and applied. The impact of these reforms on individual situations may vary. This overview is intended as an educational tool only and does not replace a more rigorous review of the law’s applicability to individual circumstances and attendant legal counsel and should not be relied upon as legal or compliance advice. As required by US Treasury Regulations, we also inform you that any tax information contained in this communication is not intended to be used and cannot be used by any taxpayer to avoid penalties under the Internal Revenue Code.