At the end of June 2015 the Centers for Medicare and Medicaid Services (CMS) announced that they had boosted the reimbursement for high cost health care claims to health insurance companies participating in the ACA reinsurance program from 80% to 100% for 2014. The increase in coverage resulted from fewer requests for coverage of high cost health care services and an excess in reinsurance tax collected. The reinsurance tax is approximately $5 per person per month and is added to each consumer’s health insurance monthly premium.
ACA reinsurance tax to cover high cost claims
Under the Affordable Care Act (ACA), where everyone is eligible for health insurance and no one can be denied because of a pre-existing condition, it was anticipated that a certain number of people would need immediate and expensive health care services. Built into the ACA was a transitional reinsurance provision to help cover high claims costs for new members with big health challenges such as chronic illnesses or delayed health care like a surgery. (High cost claims are defined as being between $45,000 and $250,000 per member).
July 7, 2015
California Insurers Received $1.2B Under ACA Reinsurance Program
California insurers have received nearly $1.2 billion through the Affordable Care Act’s reinsurance program, according to a Covered California analysis of a recent CMS report, Business Insurance reports (Geisel, Business Insurance, 7/6).
Premium Stabilization Program
The reinsurance program and its payout to insurance companies to cover anticipated high cost claims from members falls under the CMS Premium Stabilization Programs of the ACA. These programs were designed to add stability to health insurance premium rates in the face of high demand for health care services that could not be accurately forecasted with the new guarantee health insurance. The reinsurance tax was to reduce the uncertainty and potential volatility to health insurance premiums has the high cost claims were to be covered at 80%. The transitional reinsurance tax will end with the close of the 2016 calendar year.
Collections greater than requests for coverage
Of the 484 reinsurance-eligible issuers of health insurance in the individual market nationwide, 437 of those companies will be receiving payments to cover high cost claims in 2014. The requested payments from these issuers was approximately $7.9 billion while estimate projections for reinsurance tax contributions for 2014 is approximately $8.7 billion. Under the final rules established by the U.S. Department of Health and Human Services, if reinsurance contributions exceed total requests for reimbursement the coinsurance can be increased to cover 100% of the claims instead of the originally stated 80%.
Summary of report highlights
Transitional Reinsurance Program
- Our preliminary analysis of the transitional reinsurance program for the 2014 benefit year shows that the reinsurance program is working as intended – by providing protection to issuers with exceptionally high costs.
- As announced on June 17, 2015, for the 2014 benefit year, reinsurance contributions exceeded the requests for reinsurance payments; therefore we have increased the coinsurance rate to 100 percent.1
- For the 2014 benefit year, over $7.9 billion in reinsurance payments will be made to 437 issuers nationwide.
Permanent HHS Risk Adjustment Program
- Our preliminary analysis of the risk adjustment transfers for the 2014 benefit year shows that the risk adjustment methodology is working as intended – by compensating issuers that enrolled higher risk individuals and protecting against adverse selection within a market within a state. For example, we have found that:
- Issuers that enrolled a large share of HIV/AIDS patients, whether because they offered more robust prescription drug coverage or contracted with the Ryan White Foundation, received risk adjustment payments;
- Issuers that attracted more high-risk patients due to networks that include key specialty hospitals received risk adjustment payments;
- Issuers that had a history of serving high risk individuals as the issuer of last resort and therefore enrolled a disproportionate number of expensive consumers received risk adjustment payments; and
- Small plans with isolated cases of catastrophically ill individuals received risk adjustment payments.
Select California health plan reimbursements
The formula for calculating the net payments is a little complex. In addition, the reported transfers to occur in August 2015 also include liabilities that have not been collected according to CMS “Transitional Reinsurance Program: Pro Rata Adjustment to the National Coinsurance” notice. Carriers have until November 15th, 2015 to remit all the 2014 reinsurance tax. Consequently, the total transfer amount in red or a negative amount indicates future tax collections against claims to be covered.
We note that the risk adjustment transfer amounts and reinsurance payment amounts below do not reflect any payment or charge adjustments due to discrepancies or appeals or effects of sequestration.4 Additionally, data included in this report reflect amounts calculated based on the reinsurance payment parameters and risk adjustment methodology outlined in regulation (78 FR 15410 and 45 CFR Part 153) and is provided for informational purposes. These amounts do not constitute specific obligations of federal funds to any particular issuer or plan. – Transitional Reinsurance Program: Pro Rata Adjustment to the National Coinsurance notice
|Company||Reinsurance Payment Amount||Adjustment Transfer Amount Individual Market||Risk Adjustment Transfer Small Group Market|
|Anthem Blue Cross||$401,126,393.31||$181,692,599.01||$23,364,909.92|
|Blue Shield of California||$363,050,264.53||$135,212,707.60||$13,755,875.29|
|Chinese Community Health Plan||$1,824,095.22||$16,711,278.79||$3,067,299.35|
|Contra Costa Health Plan||$2,293,366.91||$1,753,287.86|
|County of Santa Clara (Valley HP)||$440,556.13||$318,460.38|
|County of Ventura||Not Eligible||$500,462.21|
|Health Net Life Insurance||$96,305,759.81||$53,801,059.26||$1,149,328.11|
|Health Net of California||$48,731,305.15||$100,186,993.89||$3,718,209.96|
|Kaiser Permanente||Not Eligible||$178,446.96|
|Time Insurance (Assurant)||$45,901,082.37||$19,393,416.27|
|Western Health Advantage||$5,847,162.74||$2,576,272.04||$884,571.67|
Download the notice and draft reimbursement CMS reinsurance documents.