Health Care Reform Today

• Bill Harrington
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  Bill Harrington

  

  Bill Harrington

  Cigna's Actuarial Senior Director, Healthcare Pricing

One aim of the Patient Protection and Affordable Care Act (PPACA) is to increase the number of Americans who are covered by health insurance. To help achieve this goal, PPACA introduces a variety of new taxes and fees 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, whfich are unrelated to each other and defined within separate provisions of the legislation. Because of the impact that these fees will have on premiums, I’d like to take some time to explain them in detail.

I’ll start with the one that has the smallest financial impact – the Comparative Effectiveness Research Fee (CERF). You may have also heard this referred to as the “Comparative Research Assessment,” the “Comparative Effectiveness Fee” or the “PCOR” (Patient-Centered Research Outcomes) fee.

First due on July 31, 2013, the CERF will be charged to health plans to help fund the comparative effectiveness research that will be conducted by the Patient Centered Outcomes Research Institute, a non-profit organization established by PPACA.

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 different types of therapy against each other; say for example, different asthma drugs or types of surgeries for incontinence.

The initial annual charge associated with this fee is $1 per enrollee, for plan years beginning 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 this fee for insured plans, but the regulations do not allow us to make the payment for self-funded plans. However, 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.

Next I’d like to cover the Health Insurance Industry Fee or “Industry Fee” for short. This fee, which is intended to help fund the cost of implementing 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 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 national premium base, and will only be assessed relative to insured health plans, including medical, dental and vision plans. The fee is not applicable to self-funded health plans or stop-loss insurance policies. 

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.

The third and final fee I’d like to highlight is the temporary Reinsurance Assessment, which will fund a three-year reinsurance program designed to reimburse companies that insure high-cost individuals within 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, when the program ends. This fee will be assessed on a per covered person basis, and we anticipate that the assessment rate will be approximately $60 to $90 per covered person in 2014.

An important difference from the Health Insurance Industry Fee is that the Reinsurance Assessment applies to both insured and self-funded plans. For insured plans, we are directly liable for the assessment. However, clients are liable for the assessment on self-funded plans, although they have the option of having us facilitate payment on their behalf.

I know this is a lot to digest at once, but we wanted to ensure that you are aware of the impacts of these fees. There are many more details you’ll be interested in learning about, so please see our Fees and Taxes fact sheet. I hope you’ll find this information about the new fees to be helpful.

And please know that while Cigna cannot provide you with tax or legal guidance, we are here to help you navigate the evolving benefits and coverage landscape under PPACA.