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Self-Funded Employers Will Pay Billions for High-Cost Coverage

The first-year assessment paid by very large employers—those with at least 100,000 employees—will run into millions of dollars, for which employers will receive no direct benefit.

August 27, 2012
Related Topics: Health Care Reform, Health Care Costs, Benefit Design and Communication, Health Care Benefits, Policies and Procedures, Latest News
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Self-funded employers will have to fork over billions of dollars to help fund an obscure health care reform law-created program that will partially reimburse commercial insurers writing policies for high-cost individuals.

The first-year assessment paid by very large employers—those with at least 100,000 employees—will run into millions of dollars, for which employers will receive no direct benefit.

"It is going to a big number, a lot bigger than some people may have thought," said Anne Waidmann, a director in Washington for PricewaterhouseCoopers L.L.P.

Insurers also will be hit with the assessments, but they, unlike self-funded employers, will receive much of the $25 billion in assessments authorized by the Patient Protection and Affordable Care Act to be collected from 2014 through 2016.

For self-funded employers, "It is hard to identify a direct benefit, as they are already providing health insurance benefits," said Gretchen Young, senior vice president of health policy for the ERISA Industry Committee in Washington.

"Employers will get no financial benefit from this at all," said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, New Jersey.

Many crucial details about the transitional reinsurance program have yet to be provided by federal regulators, including the exact amount of the assessment, which will be calculated on a per-participant basis.

Benefit consultants have made preliminary projections. Aon Hewitt, for example, estimates that the 2014 assessment will be in the range of $60 to $80 per health care plan participant, while Towers Watson & Co. puts the first-year assessment range at between $70 and $90 per plan participant.

Consultants don't expect official guidance on the amount of the fee per participant until at least this fall.

"Regulators are expected to issue a notice this fall that spells out exactly how the per-capita fee will be imposed on plan participants," Mercer L.L.C. said in a report last week. The guidance will come from the U.S. Department of Health and Human Services which, under the health care reform law, was given such regulatory authority.

And there are plenty of other unknowns. For example, guidance is needed on the methodology to be used in counting the number of plan participants. Such guidance is critical, since the number of people enrolled in an employer's health care plan could vary considerably during a year.

"Employers need to know as soon as possible how much this is going to cost them," Young said.

Other details are clear. For example, the fee will be assessed for every health care plan participant, regardless of employer size.

"There is no small-employer exemption in this part of the law," said Amy Bergner, a Mercer partner in Washington.

In the case of fully insured plans, the fee will be paid by insurers. For self-funded plans, third-party administrators are to remit the fee on behalf of their clients. Fees are to be paid quarterly, with the first payment due January 15, 2014.

Certain health care-related plans are exempt from the fee, including stand-alone dental, vision and flexible spending accounts, as well as Medicare Advantage and Medicare Part D prescription drug plans.

Benefit experts say the fee also will apply to retiree health care plans, as well as to health reimbursement arrangements. But it is unclear how the fee would be assessed when HRAs are involved.

Guidance provided by the IRS this year might serve as a model for how HRAs are treated under the transitional reinsurance program. That guidance involved another health care reform law provision that imposes a small fee on health care plans to fund research on medical outcomes.

Under those proposed rules, an employer with an HRA linked to a self-funded high-deductible health care plan would be liable for the fee only for participants in its health care plan. It would not pay a second fee for participants in the HRA.

On the other hand, the fee would be imposed on HRAs if the arrangement were linked to an insured health care plan. In that situation, the employer would be liable for the fee covering participants in the HRA, while the insurer would be liable for the fee on the insured plan.

Despite the big fees employers face under the reinsurance program, few even know about the program, let alone their potential costs. "It has been a big sleeper issue," Buck Consultants' Stover said.

"This has not garnered as much attention as other provisions" in the health care reform law, Mercer's Bergner said.

But employer awareness is increasing as word of its effect is spreading in the benefits community amid efforts of some trade groups to publicize the provision.

The American Benefits Council, for example, held a webinar this month for its members about the program.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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