Healthcare Reform Fees & Taxes PATIENT PROTECTION AND AFFORDABLE CARE ACT

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1 OVERVIEW Healthcare Reform Fees & Taxes PATIENT PROTECTION AND AFFORDABLE CARE ACT July 2012 MAY 2013 The healthcare reform law contains a number of tax law changes beginning with the 2013 tax year and imposes several fees associated with group healthcare plans. Because these new fees and taxes will affect your premiums or administrative fees, it is important for you to understand their impact. We have provided a brief overview of each fee or tax along with a chart which summarizes everything for you, including how these fees and taxes will be displayed on your. Comparative Effectiveness Research Fee SELF FUNDED, FULLY INSURED AND SMALL GROUP PLANS The healthcare reform law establishes a new Patient-Centered Outcomes Research Institute (PCORI) to assist patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing comparative clinical effectiveness research. The research conducted through this new institute will be paid for by a new Patient-Centered Outcomes Research Trust Fund. The PCORI will be partly funded through the comparative effectiveness research (CER) fees payable by issuers of health insurance policies and sponsors of self-insured health plans. Health plans and self funded groups are required to pay the CER fee of one dollar per covered life effective for plan years ending on or after October 1, The fee adjusts to two dollars per covered life for plan years ending October 1, 2013, through September 30, After September 30, 2014, the amount will be determined based upon the percentage increase of National Health Expenditures data released by the Department of Health and Human Services (HHS) annually until plan years ending September 30, 2019, at which time the CER fee will no longer be applicable. The regulations do not exclude retiree-only health plans. Employers and insurance carriers will need to include retirees when they calculate average covered lives. Based on the established rate, the estimated amount to be paid by Blue Cross fully insured customers is on average $1.95 million per year from 2013 to Self funded groups will be responsible for paying this fee and insurers are not allowed to pay or calculate the fee on their behalf.

2 Transitional Reinsurance Program Fee SELF FUNDED, FULLY INSURED AND SMALL GROUP PLANS The healthcare reform law establishes a reinsurance program beginning in 2014 and extending through This program provides funding to assist health insurers with the additional cost associated with insuring high risk individuals through the individual market. Health plans will be subject to a per capita contribution to fund the reinsurance pool and the administration of the program. Total contributions for the reinsurance program are $12 billion in 2014, $8 billion in 2015 and $5 billion in HHS issued a final rule on March 11, 2013 setting the rate for 2014 at $5.25 per member per month or $63 per member per year. This rate is expected to decrease in 2015 and The final rule also states that self funded groups are responsible for the payment of this fee and health insurers are required to pay the fee on behalf of their underwritten groups. Beginning October 2014, Blue Cross will provide a report on GroupAccess each October through 2016 to help self funded groups determine their enrollment count. Self funded groups must report the number of covered lives on their plan to HHS by November 15 of each year the fee is to be paid. Blue Cross will calculate the enrollment count for all of our underwritten groups, submit the total counts to HHS by November 15 and make the total payment. The estimated amount Blue Cross underwritten customers will pay for reinsurance fees will be $57 million in 2014, $38 million in 2015 and $24 million in Health Insurer Tax FULLY INSURED AND SMALL GROUP PLANS Health insurers will have to pay an annual excise tax that will help fund the premium subsidies and tax credits that will be available to individuals who are purchasing health insurance on the exchanges, also known as the Health Insurance Marketplace. This tax is a fixed-dollar amount distributed across all health insurance carriers and is based on each carrier s share of national net premiums written in the previous year. The total fee for all insurers is $8 billion in 2014, $11.3 billion in , $13.9 billion in 2017, and $14.3 billion in After 2018, the tax rises according to an index based on net premium growth. The 2014 tax will be based on 2013 premiums. We currently estimate the average tax obligation for Blue Cross customers will be approximately 2.2 percent of underwritten premium from 2014 to TAX REFORM High Cost Insurance Tax (Cadillac Tax) SELF FUNDED, FULLY INSURED AND SMALL GROUP PLANS The high-cost insurance tax, or Cadillac Tax, goes into effect for tax years beginning January 1, This will impose a 40 percent excise tax on health plans that cost more than $10,200 for single coverage and $27,500 for family coverage annually. This tax is intended to discourage high-premium health plans which some argue tend to encourage overuse of medical care.

3 Exchange User Fee BLUE CROSS SMALL GROUP PLANS ONLY Health insurers that offer plans on the federal exchange in 2014 will have to pay to play. HHS has announced that beginning in 2014, a user fee will be collected from health insurance issuers participating in states where the federal government will be operating the exchange. This fee will help support the operations of an exchange in these states. At this time, the state of Alabama has indicated it will not operate a state-based exchange. Therefore, Blue Cross and our small group customers must pay the HHS proposed user fee of 3.5 percent of monthly premiums on plans offered through the exchange. Risk Adjustment User Fee BLUE CROSS SMALL GROUP PLANS ONLY You can depend on Blue Cross and Blue Shield of Alabama to guide you through healthcare reform and the changes that come with it. The new healthcare law requires risk adjustment for nongrandfathered individual and small group plans both on and off the health insurance exchange. Risk adjustment reallocates premium income among plans to account for differences in enrolled members overall health and the corresponding cost. If a state does not establish a system to perform this risk adjustment, then HHS will create and operate one for that state. The state of Alabama will not create a risk adjustment program. Health insurers in states that opt out of operating their own risk adjustment programs must pay HHS a user fee for the operation of a federal risk adjustment program. The fee will help fund the administrative cost of running the program and is assessed based on the number of enrollees in risk adjustment covered plans. HHS has issued a proposed rule stating the estimated total cost for HHS to operate the risk adjustment program on behalf of states for 2014 would be less than $20 million and the fee will be no more than $1 per enrollee per year. Healthcare Reform Summary of Fees & Taxes TEAR-OUT REFERENCE GUIDE

4 Healthcare Reform Summary of Fees and Taxes Tax / Fee Description Effective Date and Duration Amount Business Affected How will fee be billed? FULLY INSURED SELF FUNDED Comparative Effectiveness Research Fee (Patient Centered Outcomes Research Institute - PCORI) Fund designed to aid in the research and evaluation of health outcomes and clinical effectiveness. Provides patients with evidencebased information to make better informed medical decisions. For policies ending October 1, 2012 through September 30, 2019 $1 per member per year- Plan years ending on or after October 1, 2012 through September 30, $2 per member per year - Plan years ending on or after October 1, 2013 through September 30, Amounts beginning for plan years on or after October 1, 2014 will be based on previous year s rate plus medical inflation. Self Funded and Fully Insured/Small Group Plans Included in your premium beginning with July 2013 renewals. Responsibility of the group to pay and self-report on Excise Tax Form 720. Transitional Reinsurance Program Fee Provides funding to assist health insurers with the additional cost associated with insuring high risk individuals in the individual market. January December 2016 $5.25 per member per month or $63 per member for benefit year Note: $25 billion will be collected over a three-year period in the amounts of $12 billion in 2014, $8 billion in 2015 and $5 billion in Self Funded and Fully Insured/Small Group Plans beginning beginning July 1, Responsibility of the group to pay. Blue Cross will provide reports each October on GroupAccess to help you determine enrollment count. High-Cost Insurance Tax (Cadillac Tax) This tax is intended to discourage highpremium health plans which some argue tend to encourage overuse of medical care. January 2018 Imposes a 40 percent excise tax on health plans that cost more than $10,200 for single coverage and $27,500 for family coverage annually. Self Funded and Fully Insured/Small Group Plans To be determined. To be determined. Health Insurer Tax Annual non-deductible excise tax to help fund the premium subsidies and tax credits that will be available to individuals who are purchasing health insurance on the exchanges, also known as the Health Insurance Marketplace. January 2014 Approximately 2.2% of underwritten premium from Note: This tax is a fixed-dollar amount distributed across all health insurance carriers and is based on each carrier s share of national net premiums written in the previous year. The total fee for all insurers is $8 billion in 2014, $11.3 billion in , $13.9 billion in 2017, and $14.3 billion in After 2018, the tax rises according to an index based on net premium growth. Fully Insured/ Plans beginning beginning July 1, Not applicable. Exchange User Fee This fee will help support the operation of an exchange in participating states where the federal government will be operating the exchange. At this time, the state of Alabama has indicated it will not operate a state-based exchange. January percent of monthly premiums on plans offered through the exchange. Blue Cross Plans Only beginning with plan years on or after Not applicable. Risk Adjustment User Fee This fee will help support the operation of a risk adjustment program in participating states where the federal government will be operating the program. At this time, the state of Alabama has indicated it will not operate a state-based program. The fee is assessed based on the number of enrollees in risk adjustment covered plans sold on the exchange. January 2014 Estimated to be no more than $1 per enrollee per year. Blue Cross Plans Only beginning with plan years on or after Not applicable. Blue Cross and Blue Shield of Alabama is an independent licensee of the Blue Cross and Blue Shield Association. MAY 2013

5 Healthcare reform + you For more information about healthcare reform and how it may impact you or your business, visit our new healthcare reform microsite at: HCRAlabamaBlue.com And while you re there, sign up to receive healthcare reform updates by . An Independent Licensee of the Blue Cross and Blue Shield Association The content provided in this brochure is for general informational purposes only. Various provisions of the Affordable Care Act (healthcare reform) and its regulations are yet to be published or finalized and are subject to change. Therefore, the content may not be up to date at the time of viewing. As the information provided herein may not be applicable in all situations, it should not be acted upon without specific legal advice based on your particular facts.

6 An Independent Licensee of the Blue Cross and Blue Shield Association HCRAlabamaBlue.com The content provided in this brochure is for general informational purposes only. Various provisions of the Affordable Care Act (healthcare reform) and its regulations are yet to be published or finalized and are subject to change. Therefore, the content may not be up to date at the time of viewing. As the information provided herein may not be applicable in all situations, it should not be acted upon without specific legal advice based on your particular facts. MAY 2013