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New Health Reform Fees on the Horizon Impact Premiums and Rates

November 20, 2012

To fund several of the changes mandated by the health reform law – the Affordable Care Act (ACA) – new fees will apply to health insurance issuers and self-funded plan sponsors. The fees fund patient-centered outcomes research, the Transitional Reinsurance Program, and premium tax subsidies for individuals in Exchanges.

The fees impact fully insured and self-funded plans differently. For fully insured plans, UnitedHealthcare will collect the funds through premium rates and pay the fees for the Insurer Fee, Transitional Reinsurance Fee and the Patient-centered Outcomes Research Institute (PCORI) research fee.

For self-funded plans, UnitedHealthcare will collect the Transitional Reinsurance Fee from clients and pay the fee. Self-funded clients must pay the PCORI research fee directly to the Internal Revenue Service (IRS). The Insurer Fee does not apply. 

Health Reform Fee Financial Impact
For fully insured customer, the cumulative impact of the health reform fees in 2014, based on the government rule and industry analysis, shows an increase in the premium by about 3.8 percent. For self-funded plan sponsors, it is about $6 per member per month.  

Patient-centered Outcomes Research Institute (PCORI) Fee   2012-2019

Impacts both fully insured and self-funded plans
The Patient-centered Outcomes Research Institute (PCORI) Fees fund research that evaluates and compares health outcomes, clinical effectiveness, risks and benefits of medical treatments and services. The research will help patients, health care professionals and policymakers make better informed decisions about treatment options.

Starting with plan years ending after October 2012, health insurance issuers and employers sponsoring self-funded group health plans must pay $1 per member per year to fund the PCORI research fee. The fee increases to $2 per member per year in the second year. Then, the fee adjusts based on the percentage increase in the projected per capita amount of national health expenditures.

Self-funded clients, as the plan sponsor, must file federal excise Form 720, and pay the research fee directly to the IRS. Under the IRS rules, third parties may not pay the research fee or file Form 720 on behalf of self-funded plans. Self-funded clients are encouraged to consult their tax advisor if they have questions about filing the excise tax returns.

In the case of fully insured coverage, UnitedHealthcare is responsible for filing Form 720 and paying the required PCORI research fee. The  fee will be rolled into the premium rates and will not called out separately on the invoice.  As with the Transitional Reinsurance Fee, when a group purchases more than one policy subject to PCORI, the fee might be paid twice for the same covered life.

The PCORI research fee is due by July 31 of the calendar year immediately following the last day of the plan year. So, the 2012 fee must be paid by July 31, 2013. 

According to PCORI, it receives income from two funding streams: the general fund of the Treasury and the fee assessed on Medicare, private health insurance and self-funded plans. PCORI is expected to receive an estimated $3.5 billion over the life of the Institute.

Transitional Reinsurance Fee   2014-2016

Impacts both fully insured and self-funded plans   
The Transitional Reinsurance Fee is collected from health insurance issuers and third-party administrators (TPA) on behalf of self-funded group health plans to fund the Transitional Reinsurance Program. The program distributes the funds to insurers in the non-grandfathered individual market that disproportionately attract individuals at risk for high medical costs. The intent is to spread the financial risk across all health insurers to provide greater financial stability. The Reinsurance Program will exist for the first three years of the Exchanges’ operation (2014-2016).  

The quarterly fee is assessed on a per capita basis. Use of a per capita assessment may lead to multiple payments when a group purchases more than one policy that is subject to the Transitional Reinsurance Fee or the PCORI Fee. The issuer or a self-funded group with two policies/plans may pay the fee twice for the same covered life.  

For our fully insured customers, the Reinsurance Fee will be collected through premium rates when approved by the state. Self-funded clients will fund the Reinsurance fee, and UnitedHealthcare will collect and remit the fee as required by the Department of Health and Human Services. 

UnitedHealthcare will charge the bank account of self-funded clients to pay the quarterly federal payments and any state reinsurance fee rather than increase clients’ administrative fees. The fee will be taken from the client’s account as an automatic, electronic withdrawal.  If a bank account is not currently established, a process is being created to administer the payment process. 

We expect that the first payment will be due on Jan. 15, 2014, but we are awaiting final guidance from the federal government on the amount and timing of the payments. 

The impact of the Transitional Reinsurance Fee, based on the government rule and industry analysis, is about $6 per member per month for the first year. 

The health reform law specifies the total amounts of the Reinsurance Fee that must be collected for the Reinsurance Program is $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016, totaling $25 billion. 

Insurer Fee  2014 - Permanent

Impacts fully insured plans only  
The Insurer Fee, also called the health insurance industry tax or premium tax, is an annual, permanent fee on health insurance providers beginning in 2014.  The fee will fund premium tax subsidies for individuals and families with household incomes between 100 percent and 400 percent of the federal poverty level who purchase health insurance through the Health Benefit Exchange. Exchanges launching in 2014 allow individuals and small businesses to compare and purchase health plan offerings in their state. 

The amount of the Insurer Fee is determined by the market share of the health insurance provider. It is based on its net written health insurance premiums in the previous year, with certain exclusions. 

While we have not received final federal guidance on the Insurer Fee, the impact of the fee, based on the government rule and industry analysis, is about 2.3 percent of the premium the first year. The Insurer Fee also applies to stand-alone dental and vision plans. The Insurer Fee applies only to health insurance providers, like UnitedHealthcare. Therefore, it affects fully insured business only. 

The Insurer Fee imposed on the health insurance industry is $8 billion in 2014 increasing each year to $14.3 billion in 2018, and indexed to premium trend thereafter. 

Fee Collection and Payment Summary

Self-funded Plans
Self-funded plans pay the PCORI research fee directly to the IRS. Self-funded clients will fund the Reinsurance fee, and UnitedHealthcare will collect and remit the fee. The Insurer Fee does not apply. 

Fully Insured Plans
Fully insured health plans will start seeing these fees prorated into their premiums, when approved by the states. 

The PCORI research fee is included in the premiums for fully insured customers.  We  will start progressively incorporating the fees into premiums for the Insurer Fee and the Transitional Reinsurance Fee beginning Feb 1, 2013, as renewals or new business cases begin and state regulatory approvals are received. A footnote acknowledging the fees will appear on quotes, renewal packages and invoices. (Because the PCORI fee is nominal, it will not be referenced in the footnote.) 

The footnote below will appear on 2-50 quotes and renewal packages as early as July 1, 2013, rate effective dates, and on 51+ quotes and renewal rate exhibits as early as Feb. 1, 2013 rate effective dates. The exact dates of these changes depends on the timing of state-specific regulatory filings and approvals.  

This premium includes state and federal taxes and fees, including the Insurer Fee (about 2.3% of premium) and the Reinsurance Fee (about $6 per member per month) under the Affordable Care Act.  These estimates will vary based on renewal date and state reinsurance fees. 

On invoices, the footnote will appear on invoices for 2-50 and 51+ starting as early as July 1, 2013, rate effective dates, depending on the timing of state-specific regulatory filings and approvals.

For more Information 
To learn more about taxes and fees and other health reform changes impacting employers, review:

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