Reinsurance Belly Button Tax
Who: The reinsurance tax is paid by insurers and third-party administrators (TPAs). It applies to each plan member, spouses, and each dependent covered in a health plan offered by a “contributing entity” – hence the nickname “belly button tax.”
When: The Transitional Reinsurance Program tax is required under the PPACA for 2014, 2015, and 2016. On March 11, 2014 HHS made a final ruling with changes effective for benefit years starting in 2015.
What: The H.H.S. final ruling has three parts:
A. Defines a new 2015 and 2016 tax exception for self-insured self-administered group health plans,
B. Establishes the 2015 reinsurance contribution rate, and
C. Implements a two installment collection schedule
Executive Summary: The Transitional Reinsurance Program is a three year declining tax to help insurers stabilize individual premiums for policies sold through government Exchanges during the first three years.
The reinsurance tax applies to all “contributing entities” defined as, “health insurers or a third-party administrators working on behalf of a self-insured group health plan, except that for 2015 and 2016 benefit years, self-insured self-administered group health plans will not be considered “contributing entities.”
A. New Exception from Tax: A self-insured self-administered plan will not lose its exemption if it uses an unrelated third party to obtain a discount provider network, claim re-pricing services, if it outsources core administrative functions for pharmacy or other excluded benefits such as dental or vision coverage, or if it outsources no more than 5% of core administrative services on non-excluded benefits. Excluded benefits are:
B. Reinsurance Rate: Annually HHS converts the ACA mandated annual total dollars of tax into a per capita cost based on enrollments provided by the contributing entities’ “commercial book of business.”
C. Tax Collection: The Reinsurance Pool (and administrative fees) tax will be paid at the beginning of the calendar year following the applicable benefit year, and the tax to the U.S. Treasury will be collected in the last quarter of that calendar year. The taxes are generally deductible as ordinary and necessary business expenses.
Actions Required: Employers should check with their insurers, TPAs, consultants, and legal advisors to determine the data submittals required, the applicable tax amount, and timing for payments. A form will be available at www.pay.gov where a contributing entity (or TPA on its behalf) can find help with the tax.
The information presented and contained within this article was submitted by Ronald E. Bachman, President & CEO of Healthcare Visions and Chairman of the IHC Editorial Advisory Board. This information is general information only, and does not, and is not intended to constitute legal advice. You should consult legal advisors to determine the laws and regulations applicable to your company. Any opinions expressed within this document are solely the opinion of the individual author.