PPACA primer: A trio of new fees explained

One aim of the Patient Protection and Affordable Care Act (PPACA) is toincrease the number of Americans who are covered by health insurance.To help in achieving this goal, PPACA introduces a variety of new mechanisms intended to raise revenues that will: a) support the individual health insurance market, b) help fund the state and federal exchanges, and c) assist with conducting research that compares treatment effectiveness.

As a result, over the next several years,health plans will be required to pay three new fees.
Because of the impact these fees will have on premiums, we’d like to take time to explain them in detail.

Comparative Effectiveness Research Fee (CERF)
For those of us not in the medical community, medical research often focuses on whether a specific treatment works for a condition by testing one treatment against a placebo within a highly defined population. Comparative effectiveness research is different. Its goal is to determine which of two or more treatments works best when applied to actual patients in the “real world,” comparing two types of therapy against each other; say for example, different asthma drugs or types of surgeries for incontinence.

This fee has the smallest financial impact of the three.First due on July 31, 2013, it will be charged to health plans to help fund the research that will be conducted by the Patient Centered Outcomes Research Institute, a non-profit organization established by PPACA. The initial annual charge associated with this fee is $1 a year, per participant (includes dependents) for plans effective 11/1/2011 through 10/1/2012. The annual charge increases to $2 per enrollee the following year and then increases annually with inflation after that until it ends in 2019.

We pay the fee for insured plans, but the regulations do not allow us to for self-funded plans. However, at no additional charge,we will help our self-funded clients determine their liability with self-service reports. More to come on this after the first of the year.

Comparative
Effectiveness
Research Fee / Health Insurance
Industry Fee / Reinsurance Assessment
What is it? /
  • Annual fee on insured and self-insured plans beginning on/after 10/2/11
/
  • Annual fee on all insured plans beginning in 2014
/
  • Annual fee on insured and self-insured plans, 2014-2016

ExcludesDental/Vision / IncludesDental/Vision / ExcludesDental/Vision
How much? /
  • Annual fee of $1, then $2; indexed to med inflation til 2019
  • First payable July 2013
/ Estimated costs:
  • 2 to 2.5% for 2014
  • 3 to 4% for later years
/ Estimated costs:
  • $60 to $90 PMPY in 2014
  • $40 to $60 PMPY in 2015
  • $25 to $35 PMPY in 2016

IStax-deductible / NOTtax-deductible / IStax-deductible
Who pays? /
  • FI: Cigna pays, built into rates
  • SF: Per regulations, employers must calculate and pay own fee
  • Cigna will assist
/
  • Cigna pays
  • Applies only to insured business, will be based upon each insurer’s share of the taxable health insurance premium base (among all health insurers of U.S. health risks)
/
  • FI: Full amount built into rates for 1/1/14+; partial load in 2013
  • SF: Client is liable but Cigna submits payment on their behalf

Health Insurance Industry Fee
This fee, which is intended to help fund the cost-generating provisions of the PPACA, has a much greater financial impact than the other two fees discussed here.

The total annual amount of the Industry Fee is based on a fixed dollar schedule, which starts at $8 billion in 2014, and increases to $14.3 billion in 2018. Beyond 2018, the total annual fee amount will increase in direct proportion to the growth in health insurance premiums.
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 willnotbe included in the premium base.

The Industry Fee is not deductible for federal income tax purposes. This substantially increases the cost impact, which is expected to be in the range of 2.0 to 2.5% of premium in 2014, increasing to 3.0 to 4.0% of premium in later years. Insurance companies will likely begin to reflect this additional cost in their premium rates in 2013 or 2014.

Reinsurance Assessment
This fee will fund a three-year reinsurance program designed to reimburse companies that insure high-cost individuals within the individual health insurance market. The assessment works on a fixed dollar schedule with the amounts decreasing year over year, and it is time-limited. The total amounts to be assessed are $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016, when it ends. The assessment applies to both insured and self-funded plans:

We will pay the fee for our insured plans, and our self-funded clients will pay it themselves, although we will facilitate it on their behalf.

Summary
We hope you’ll find this information about the new fees to be helpful. Please know that while Cigna cannot provide you with tax or legal guidance, we are here, as always, to help you navigate the evolving benefits/coverage landscape under PPACA. We encourage you to consult your legal/tax advisors if you have any questions regarding the new fees.

For more health care reform information and insights, please visit and bookmark