By Josie Martinez, Senior Partner and Legal Counsel
EBS Capstone, A UBA Partner Firm
The goal of health care reform is health care for all… but at what cost? By 2014, businesses with 50 or more full-time-equivalent employees will be at risk for financial penalties (the so-called “shared responsibility assessments”) if they do not offer health coverage to full-time employees. We are all well aware of the $2,000 and $3,000 assessments that could be applied to employers that do not offer affordable, minimum value coverage to full-time employees, and most of us have been advising clients on penalty avoidance strategies for many months already. Meanwhile, business owners nationwide struggle with weighing the financial aspects of providing such coverage or paying the penalties. A recent survey suggests that only 28 percent of companies that employ a large number of low-income workers offer health benefits.
But there are other costs to consider, as well. In addition to shared responsibility assessments, there will be various other fees that will be felt by employers that are expected to ultimately result in higher premiums and could undermine a core principle of the Patient Protection and Affordable Care Act (PPACA) that is meant to provide basic health protections for all Americans. Over the next several years, insured group health plans will be required to absorb the costs of three new fees. These fees imposed by PPACA on insurers will inevitably trickle down to increase rates in the coming years. In a recent meeting presented by a major national health insurance carrier, regarding “State and Federal Reform Impact,” it became clear that at least three new assessments/fees imposed on carriers will affect employers’ renewal rates in the future and ultimately their bottom line:
- Reinsurance Assessment - This per capita fee on medical plans will fund a three-year reinsurance program designed to reimburse companies that insure high-cost individuals in the individual health insurance market. The total amounts to be assessed are $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016. The estimated fee is approximately $63 per year ($5.25 per month) per covered individual in the first year; however, fees are expected to decrease in subsequent years. The assessment applies to both insured and self-funded plans. Insurance providers will pay the fee for insured plans while third-party administrators may pay the fee on behalf of self-funded plans.
- Comparative Effectiveness Research Fee (CERF) – This is an annual fee imposed on all insured and self-insured plans. The goal of the research is to determine which of two or more treatments works best when applied to patients, thereby comparing different types of therapy against each other. CERF will be charged to health plans to help fund the research that will be conducted by the Patient Centered Outcomes Research Institute, a nonprofit organization established by PPACA. The initial annual fee is $1per year per health plan member (includes dependents). The annual charge increases to $2 per member the following year and then increases annually with inflation after that until it ends in 2019. Insurance providers will pay the fee on behalf of insured plans, while employers with self-funded plans will need to determine their liability and account for this fee in their own reporting. For many plans, the first payments will be due July 2013.
- Health Insurance Industry Fee – This annual fee affects all fully insured plans. The estimated cost of this tax will be $8 billion for 2014 and eventually increase to $14.3 billion by 2018. The tax is divided among health insurers and will likely be passed on to plan sponsors as an addition to premium. The Health Insurance Industry Fee has a much greater potential financial impact than either of the other two taxes because it is intended to help fund the cost-generating provisions of the PPACA. 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 will not be included in the premium base. Adding insult to injury, this 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 percent to 2.5 percent of premium in 2014, increasing to 3 percent to 4 percent of premium in later years. Insurance companies will likely begin to reflect this additional cost in their premium rates in 2013 and/or 2014.
These new fees are supposedly intended to raise revenues that will support the individual insurance market, help fund the state exchanges and assist with conducting research for more effective treatments. But they will also dramatically impact group health plan premiums and could spur many employers to drop their group health plan sponsorship, pushing more employees into the individual market. In anticipation of what lies ahead, it behooves us to work proactively with employers so they can plan their finances accordingly rather than be blindsided by unwelcome surprises well before implementation happens.