CMS Expects To Reinsure 55.1 Percent Of Claims Between $45,000 And $250,000

Implementing Health Reform. Recognizing that that once health status underwriting was abolished and preexisting conditions exclusions were banned the individual market would disproportionately attract high-cost enrollees, Congress established as one of the three Affordable Care Act (ACA) premium stabilization programs a transitional reinsurance program for the years 2014 to 2016. Under this program, insurers in the individual and group markets and third party administrators of group health plans are required to pay contributions into a reinsurance fund. These contributions are distributed to health insurers in the individual market to reinsure them for covering high-cost individuals. The program has in fact significantly reduced premiums.

The reinsurance program was supposed to distribute $10 billion for 2014, $6 billion for 2015, and $4 billion for 2016. The Department of Health and Human Services (HHS) was supposed to set the amounts to be contributed under this program so that they would yield these amounts, and so that they would additionally provide $2 billion for 2014, $2 billion for 2015, and $1 billion for 2016 for the Treasury general fund, presumably to reimburse the federal government for the costs of the early retiree reinsurance program which operated from 2010 to 2013.

In fact, the program did not collect $12 billion for 2014 and is not anticipated to collect $8 billion for 2015. HHS interpreted the ACA to allow it to allocate funds first to cover the costs of the reinsurance program, the primary purpose of the legislation, and to cede remaining funds to the Treasury. CMS now anticipates that it will collect $6.5 billion for 2015, $6 billion of which will go to the reinsurance program and $0.5 billion to the Treasury.

On June 17, 2016, CMS announced that it is anticipating that the $6 billion, plus $1.7 billion left over from 2014, will allow it to reinsure insurers at a rate of 55.1 percent for enrollee claims exceeding $45,000, up to a cap of $250,000. On June 30, 2016, CMS will send notices to insurers informing them as to how much they will receive in reinsurance funds. Payments will be reduced by partial anticipatory payments already made to insurers in March and April.

On June 17, 2016, CMS also released a frequently asked question informing insurers as to how to make arrangements if they owe more to the government for repayment of cost-sharing reduction payments than they anticipated and can repay. Cost-sharing reduction payments were paid to insurers on an estimated basis for 2014 and 2015 and are now being reconciled with payments actually owed. CMS is offering insurers that need more time to repay flexible repayment schedules. Insurers have until July 12 2016 to work out a repayment schedule if necessary, and will need to pay interest on amounts due.

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