The health reform law imposes a number of fees, taxes and other assessments on health insurance companies and plans, to help subsidize a number of endeavors. Several clients have asked about these fees, taxes and assessments. The purpose of this blog posting is to itemize those costs, and to gauge their impact on the price of health insurance.
Comparative Effectiveness Research
The health reform law imposes a modest fee on insurers and on sponsors of self-insured plans, to fund research into the clinical effectiveness of various health care treatments (ultimately, one of the aims of the health reform law is to help doctors identify the treatments that are appropriate in any given situation, to help reduce the incidents of unnecessary care).
The fee applies for plan years ending after September, 2012. Thus, calendar year plans become subject to the fee for the 2012 year. The fee ceases to apply to plan years ending after September, 2019. Thus, for calendar year plans the fee will not apply after the 2018 year.
The fee is rather modest: $1 times the average number of covered lives—not just covered employees—for the plan year that ends before October, 2013. Thus, for calendar year plans, this means the 2012 year. The fee doubles to $2 times the average number of covered lives for later years, and may be increased for inflation. The fee will be collected from the insurer or, in the case of self-funded plans, the plan sponsor, the same way other taxes are collected. The IRS will issue additional guidance on this assessment shortly.
The fee does not apply to “excepted benefits,” such as most health flexible spending accounts, nor to most dental and vision plans. Although retiree-only plans dodge much of the health reform law’s mandates, it’s not entirely clear whether these plans dodge the comparative effectiveness research fee; it appears they do not.
Because the fee applies on the basis of covered lives under the plan, employers that sponsor multiple medical plans covering the same individual (for example, a major medical plan and a health reimbursement arrangement maintained as separate plans) can minimize their exposure to this tax by consolidating the separate medical plans under a single ERISA plan. Employers use a “wrap plan” to accomplish this. It’s also possible, however, that in upcoming guidance federal regulators will decline to impose the fee more than once on the same individual, regardless of the number of plans the individual is enrolled in.
Annual Fee on Health Insurers
The health reform law imposes a substantial fee on the health insurance industry, to help pay for the subsidies the health insurance exchanges are expected to supply to individuals buying insurance in the exchanges in 2014 and beyond.
The fee applies beginning in 2014. The annual amount of the fee is $8 billion in 2014, increasing to $14.3 billion in 2018, and rising thereafter in relation to the increase in premium costs. The fee applies to health insurers, but not to self-insured plans. The fee will be assessed against any individual insurer based on the insurer’s share of the health insurance market.
Of course, insurers will pass the cost of the fees on through to consumers, in the price of health insurance policies sold by the insurers. The fees are not deductible by insurance companies. This means that for every dollar in fees paid by the insurers, they will have to collect more than $1.50 in additional premiums to pay the fees (assuming a 35 percent federal tax rate, and ignoring state taxes).
America’s Health Insurance Plans (AHIP), a trade association of insurance companies, estimates that the fee will cause premiums to increase 1.9 to 2.3 percent in 2014, increasing to 2.8 to 3.7 percent by 2023. In the large group market, AHIP expects premiums to increase $140 for single coverage in 2014 ($380 for family coverage), increasing to $340 and $940, respectively, by 2023. Lockton’s own actuaries estimate a 2.2 percent increase in group insurance premiums in 2014.
Transitional Reinsurance Program
The health reform law assesses additional fees on insurers and third-party administrators of self-insured plans to partially offset the cost incurred by insurers who write individual coverage for high-risk individuals. The assessment amounts to $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016.
The fee will be assessed based on market share. Of the $25 billion collected over the three years, $20 billion is supposed to be returned to the insurance market (to insurers underwriting higher risk individual coverage), and $5 billion will be retained by the federal government, apparently to offset other costs related to the health reform law.
Lockton’s actuaries estimate the cost impact of this fee may be as much as $10-$15 per enrolled employee, per month.