Reinsurance Program Already Causing Migraines for Large Employers

A little noticed provision of the health reform law will require health insurers and self-insured employers to fund a $20 billion reinsurance program over three years. The money, which must be paid to HHS beginning in 2014, will be used to offset risk in the individual market once health insurers are required to offer coverage to all applicants regardless of health status.

Detail around the mechanics of the assessment and the amount is expected by October, according to earlier HHS guidance. Benefits consultants estimate that insurers and self-funded employers could be required to pay between $60 and $100 per covered life. Insurers will likely pass the new costs onto individuals and employer clients in the form of higher premiums for their full-risk products. But health plans with a large stake in the individual market could wind up recouping some of that money through the reinsurance program.

Here’s the rub: Although self-insured employers will be required to pay the same per-member assessment as insurers, they will see no direct benefit. Unlike health insurers, self-insured employers don’t provide coverage on the individual market and therefore won't be about to recoup any of the assessment dollars. A large self-insured employer with 16,000 employees, for example, could wind up paying $1 million or more. Some employers say the assessment is akin to a penalty for providing health coverage to employees and their dependents. But HHS has argued that the strategy will reduce uncompensated care, which means less costs will shifted onto those who have coverage.

As a result of the assessment, it’s possible that some employers could try to sidestep the payment by becoming fully insured for a few years. Others might opt to drop coverage, or limit coverage to only to employees.

Regulations released in March can be found at www.gpo.gov/fdsys/pkg/FR-2012-03-23/pdf/2012-6594.pdf. Additional guidance is expected “soon.”

Do you think the health reform law goes too far, or not far enough, when it comes to countering the wave of high-risk and uninsured people who are expected to seek coverage in the individual market beginning in 2014?