ACAP Guide to ACA Fees and Taxes for Health Insurers

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1 Introduction ACAP Guide to ACA Fees and Taxes for Health Insurers Since being signed into law in March of 2010, the Patient Protection and Affordable Care Act (ACA) has introduced a wide range of health care reforms. With the goal of expanding coverage for uninsured Americans in a cost-efficient way, the ACA has begun and will continue to affect all stakeholders in the health care world. Safety Net Health Plans and other health plans have a new opportunity to expand the coverage they offer to new populations numbering in the millions. Coverage will be provided by way of many programs, including the new health insurance marketplaces, or Exchanges, and an expansion of the Medicaid program. In addition to providing numerous opportunities for health plans, the law introduces a number of new responsibilities as well. Those health plans intending to serve the Exchange as Qualified Health Plans (QHPs) will be required to pay various fees and taxes in order to operate as commercial. These fees and taxes will be paid to the Exchanges, the Department of Treasury and the Department of Health and Human Services. The following is a guide to the fees and taxes introduced in the ACA for QHPs (and in some cases, other commercial plans) and how they will affect health care in the coming years. Annual Health Insurance Industry Fee ( Health Insurer Fee ) What it costs: This fee totals $8 billion in 2014, increases to $14.3 billion in 2018, and is then indexed to rate of premium growth. Paid by: This fee is divided among health insurance carriers based on each carrier s share of the overall national premium base. Paid to: This fee is paid to the IRS. Applies To: This fee applies to all health insurance risk revenue, including Medicaid, CHIP, and Medicare business. Purpose: The purpose of this fee is to help cover premium subsidies and tax credits to be made available to qualifying individuals purchasing insurance on the Exchanges. Timeline: This fee will be assessed in 2014 and is.

2 Exemptions: Governmental entities are excluded from paying the fee. Nonprofit insurers that receive more than 80 percent of their premium revenue from Medicare, Medicaid, and CHIP are exempt from this fee. Nonprofit insurers who do not meet the 80 percent standard are taxed on only 50 percent of their revenues. Exchange User Fees What it costs: CMS has stated that in 2014 the rate will be 3.5 percent of the premiums on all health insurance plans sold through the Federally-Facilitated Exchange (FFE). This rate is for 2014 only, and may be adjusted for future years. Paid by: This fee is paid by health insurance participating in the FFE. Paid to: This fee will be paid to HHS. Purpose: The purpose of this fee is to cover the administrative costs of running the FFE. Timeline: This fee begins in 2014 and will likely be. Transitional Reinsurance Fee (National Contribution Rate) What it costs: This fee is determined on a per capita basis, with its aggregated total being $25 billion over three years. HHS has set a national contribution rate of $5.25 per covered life per month for

3 Paid by: This fee is paid by health insurance and self-insured group health plans. Paid to: This fee is paid in annual contributions to the U.S. Treasury, a reinsurance pool and to offset administrative costs. Purpose: The purpose of this fee is to help finance the cost of high-risk individuals in the individual market. Timeline: This fee runs from Exemptions: Medicare, Medicaid, excepted benefits (such as standalone dental and vision and certain limited or supplemental benefits) or federal and certain state high-risk pools are exempt from this fee. Risk Adjustment User Fee What it costs: In 2014, this will be an annual per capita fee of $0.96 per enrollee per year, which HHS will apply as a per-enrollee-per-month risk adjusted user fee of $0.08, which will be included in the premiums that member insurers charge their customers. Paid by: This fee is paid by fully-insured plans that participate in a state s individual and smallgroup markets if the state utilizes the federal risk adjustment program. Paid to: This fee will be paid to HHS. Purpose: This fee intends to cover the administrative expense associated with running the federal risk adjustment program. Timeline: This fee begins in 2014 and is. Though the fee will be assessed on a month-to-month basis due to fluctuations in monthly enrollment, HHS has proposed to collect this fee once yearly, in June of the year following the benefit year. Exemptions: This fee does not apply to large-group plans or self-funded plans. High Value Plan Tax ("Cadillac Fee") What it costs: The Cadillac Fee is a 40 percent excise tax on any amount above $10,200 for selfonly coverage and $27,500 for self and spouse or family coverage. Paid by: Fully insured plans and health insurance pay this fee. Self-funded plans pay the fee themselves. Paid to: This fee is paid to the IRS. Applies To: This tax applies to insured and self-funded plans that cost above $10,200 (single) or $27,500 (family). Purpose: The purpose of this tax is to finance health reform. 3

4 Timeline: This fee begins in 2018 and is. Patient-Centered Outcomes Research Institute (PCORI) Fee What it costs: For plan years ending after September 30, 2012, and employers sponsoring certain group health plans will pay a fee of $1 per covered life per year. The fee then adjusts to $2 per covered life per year for plan years ending October 1, 2013 through September 30, For plan years ending after September 30, 2014, the dollar amount is indexed based on the projected per capita increase in national health expenditures, until the fee ends in Paid by: Plan sponsors and of individual and group policies. Paid to: This fee is paid to the Patient Centered Outcomes Research Trust Fund, which was authorized by Congress as part of the ACA in 2010 and receives income the general fund of the Treasury and this fee. Purpose: The Patient Centered Outcomes Research Trust Fund will use the funds to conduct comparative effectiveness research that will be used to assess health outcomes. Timeline: Exemptions: Medicare, Medicare supplement, Medicare Advantage, Medicare Part D, Medicaid, CHIP, Veterans Administration, Indian Health Service. 4

5 Name of Fee Amount Purpose Applies to Paid by Paid to Timeline Exemptions Annual Health Insurance Industry Fee ( Health insurer fee ) Exchange User Fees Transitional Reinsurance Fee $8 billion annually, increases to $14.3 billion in 2018, then indexed to rate of premium growth 3.5% of the premiums on all health insurance plans sold through the FFE Aggregated fee of $25 billion over three years. HHS has proposed a national contribution rate of $5.25 per covered life, per month for 2014, equivalent to $63 per covered life for the year To help cover premium subsidies and tax credits to be made available to qualifying individuals purchasing insurance on the Exchanges To cover the administrative costs of running an FFE To help finance the cost of highrisk individuals in the individual market All health insurance risk revenue (including Medicaid and CHIP business) participating in the FFE Health insurers IRS Begins in 2014, is HHS US Treasury and a reinsurance pool Nonprofit insurers that receive more than 80% of their premium revenue from Medicare, Medicaid, CHIP, and dual eligible plans Begins in 2014, will likely be Medicare, Medicaid, excepted benefits (such as standalone dental and vision and certain limited or supplemental benefits) or federal and certain state high-risk pools 5

6 Name of Fee Amount Purpose Applies to Paid by Paid to Timeline Exemptions Risk Adjustment Fee High Value Plan Tax (Cadillac Fee) Patient-Centered Outcomes Research Institute (PCORI) Fee $0.96 per enrollee per year, rolled into premium A 40% excise tax on any amount above $10,200 for self-only coverage and $27,500 for self and spouse or family coverage Plan years ending after September 30, 2012, a fee of $1 per covered life per year. Adjusts to $2 per covered life per year for plan years ending October 1, 2013 through September 30, For plan years ending after September 30, 2014, dollar amount is indexed based on the projected per capita increase in national health expenditures, until the fee ends in 2019 To cover administrative expense associated with running the federal risk adjustment program Finance health reform To conduct comparative effectiveness research that will be used to assess health outcomes Insured and selffunded plans that cost above $10,200 (single) or $27,500 (family) Policies of accident and health insurance for U.S. resident, including retireeonly plans Fully-insured plans that participate in a state s individual and small-group markets if the state utilizes the federal risk adjustment program Plan sponsors and of individual and group policies HHS IRS Patient Centered Outcomes Research Trust Fund Begins in 2014, is Begins in 2018, is Does not apply to large-group or selffunded plans Medicare, Medicare supplement, Medicare Advantage, Medicare Part D, Medicaid, SCHIP, Veterans Administration, Indian Health Service 6