Reform Update: Business, labor interests flummoxed by potential change to reinsurance fee

A proposed change to a fee imposed by the Patient Protection and Affordable Care Act is causing widespread confusion and consternation over whether the Obama administration tried to give organized labor relief from it.

At issue is the reinsurance fee that will be assessed on large employers and unions that run their own insurance plans beginning in 2014. Those groups have long questioned the fairness of requiring them to subsidize the health insurance exchanges when they won't be participating in the government-run marketplaces.

If the potential change is aimed a placating labor, normally a strong ally of President Barack Obama's administration, it might not work. According to the AFL-CIO, most unions wouldn't be eligible for the exemption.

In a final rule issued on Oct. 30, HHS indicated that it plans to reconsider how that fee will be assessed. “We also intend to propose in future rulemaking to exempt certain self-insured, self-administered plans from the requirement to make reinsurance contributions for the 2015 and 2016 benefit years,” reads the note, which was first highlighted by Business Insurance. According to HHS, the agency will seek guidance from interested parties on whether it should move forward with the change.

Very few businesses actually administer their own plans, according to insurance experts, leading some critics to suggest that the potential change is a move to placate labor unions that have been lobbying vigorously to repeal the reinsurance fee.

“If it isn't the Taft-Hartley plans, it's puzzling as heck to us,” said Edward Fensholt, an attorney with the insurance brokerage firm Lockton.

Maria Ghazal, a vice president at the Business Roundtable, is similarly perplexed by the proposed change. “There's a lot of question marks about who asked for this and who would benefit and what the impact would be on the amount of money collected,” she said.

Unions may not benefit much either. A “large majority” of them, according to the AFL-CIO, don't self-administer their health plans.

The fee kicks in next year, with a $63 assessment on each enrollee in self-insured plans. The fee is expected to drop to about $42 in 2015 and $26 in 2016. Altogether it's expected to raise $25 billion to provide financial protection to the insurance firms that are participating in the state and federal exchanges.

If the fee is rescinded for some groups, R. Pepper Crutcher Jr., an attorney with the firm Balch & Bingham, suggested that it could lead to lawsuits challenging whether they are getting preferential treatment.

Businesses and unions have long pushed for a complete repeal of the reinsurance fee, but the prospect of that happening is remote. “We're on the brink of 2014,” acknowledged Kathryn Wilber, senior counsel for the American Benefits Council. “It goes into effect very soon.”

On Tuesday, the American Academy of Actuaries sent a letter to lawmakers (PDF) warning about the implications of delaying the individual mandate or extending the open enrollment period, which several lawmakers in both parties have called for because of the problem-plagued rollout of the federal HeathCare.gov website. “Without the individual mandate and limited open enrollment period, premiums would likely be higher and more individuals would be uninsured than otherwise would occur without these provisions,” according to the letter.

The number of insurance firms selling products in the individual marketplace has increased by 28% with the establishment of state and federal exchanges, according to a study by the McKinsey Center for U.S. Health System Reform. Roughly three quarters of the new entrants are either firms that previously covered only Medicaid enrollees or health-insurance co-ops. Those insurers are offering 16% of the 21,000 plans being sold through the exchanges.

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