During a recent webinar we conducted for human-resources professionals on the Affordable Care Act, many questions came up about two new fees employers must pay starting in 2014 (although some companies have already started paying one of them). Since there seems to be some confusion about these charges and because they will directly affect companies’ health-care-related spending, we thought finance executives should get up to speed on them too.
Payments under the Transitional Reinsurance Program (TRP), created to help stabilize insurance premiums in the early years of health-care reform, likely will be $63 per covered life for 2014 (in order to reach a statutorily mandated $12 billion collections level) and then will decrease in subsequent years. The Patient Centered Outcomes Research Institute (PCORI) fee, which will fund comparative-effectiveness research designed to improve health-care quality, is $1 per covered life in its first year, $2 the following year and adjusted for inflation after that.
What plans do these charges apply to?
These are equal-opportunity charges. They apply to both self-funded and fully insured health-benefits plans, with small differences for plans that include health reimbursement arrangements or flexible spending accounts. They apply to an employer’s primary group health plan whether it’s small or large, grandfathered or not.
Both fees are collected by insurance carriers with respect to fully insured plans. For self-funded plans, the PCORI fee is paid by the employer using IRS Form 720, while the TRP fee is paid by the plan’s third-party administrator (TPA). Carriers can build the charges into their rates for fully insured health plans, while TPAs can get reimbursed by billing the employer or plan members.
When are payments due?
The PCORI fee applies on a plan-year basis. It begins for plan years ending after September 30, 2012 and no longer applies for plan years ending on or after October 1, 2019. Payment is due on July 31 of the calendar year after the plan year ended. For employers whose plan years ended between October 1 and December 31 2012, their $1 PCORI fee was due this summer. For plan years ending between January 1 and September 30, 2013, the first fee is not due until July 31, 2014. The fee is also due that date for plan years ending between October 1 and December 31, 2013, but it will be at the $2 level.
The TRP fee applies on a calendar-year basis for 2014, 2015 and 2016. It will first be collected toward the end of 2014 or the beginning of 2015. Employers must report the number of lives covered by their plan during the last quarter of the year, but the fee may not be payable until January of the following year.
Will carriers build these charges into their 2014 rates?
Yes, but employers should still ask its carrier or agent for an explanation about how the charges are going to be assessed. Don’t forget that the TRP fee decreases and phases out after three years. It will probably be closer to $40 to $45 for 2015, and then in the $20-25 range for 2016.
How is the number of people for which the fees are paid calculated?
Both charges apply to employees participating in the health plan, their covered dependents, certain retirees and COBRA-qualified beneficiaries (collectively, “headcount”). Employers can choose to calculate headcount in one of three ways:
Again, these methods apply on a plan-year basis for PCORI and a calendar-year basis for the TRP.
Don Garlitz is the executive director of exchange solutions at bswift, a provider of benefits software and services. Mary Bauman is an employee benefits attorney at the law firm Miller Johnson in Grand Rapids, Michigan.