ddi benefits newsletter | february 2013

What’s Wrong with this Picture?

During a recent presentation by Providence Health Plan CEO, Jack Friedman, he reminded the audience that it’s not just the financing of health care that needs reform, the delivery of health care is broken too!

More sad news, our healthcare versus other countries:

Cost Comparison of common procedures by Country:

Furthermore… so much of what we spend on healthcare in America is waste:

For more information on the cost drivers of healthcare in America visit the non-profit Kaiser Family Foundation Website at www.kff.org  which includes their Annual Employer Health and Benefits Survey results.

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Three NEW Health Reform Fees to Increase Premiums

One aim of the Patient Protection and Affordable Care Act (PPACA) is to increase the number of Americans who are covered by health insurance. To help in achieving this goal, PPACA introduces a variety of new mechanisms intended to raise revenues that will: a) support the individual health insurance market, b) help fund the state and federal exchanges, and c) assist with conducting research that compares treatment effectiveness.

As a result, over the next several years, health plans will be required to pay three new fees.

Because of the impact these fees will have on premiums, we’d like to take time to explain them in detail.

1. Comparative Effectiveness Research Fee (CERF)

For those of us not in the medical community, medical research often focuses on whether a specific treatment works for a condition by testing one treatment against a placebo within a highly defined population. Comparative effectiveness research is different. Its goal is to determine which of two or more treatments works best when applied to actual patients in the “real world,” comparing two types of therapy against each other; say for example, different asthma drugs or types of surgeries for incontinence.

This fee has the smallest financial impact of the three. First due on July 31, 2013, it will be charged to health plans to help fund the research that will be conducted by the Patient Centered Outcomes Research Institute, a non-profit organization established by PPACA. The initial annual charge associated with this fee is $1 a year, per participant (includes dependents) for plans effective 11/1/2011 through 10/1/2012. The annual charge increases to $2 per enrollee the following year and then increases annually with inflation after that until it ends in 2019.

Insurance companies pay the fee for insured plans, but the regulations do not allow them to for self-funded plans.

	Comparative Effectiveness Research Fee	Health Insurance Industry Fee	Reinsurance Assessment
What is it?	Annual fee on insured and self-insured plans beginning on/after 10/2/11	Annual fee on all insured plans beginning in 2014	Annual fee on insured and self-insured plans, 2014-2016
	Excludes Dental/Vision	Includes Dental/Vision	Excludes Dental/Vision
How much?	Annual fee of $1, then $2; indexed to med inflation until 2019 First payable July 2013	Estimated costs: 2 to 2.5% for 2014 3 to 4% for later years	Estimated costs: $60 to $90 PMPY in 2014 $40 to $60 PMPY in 2015 $25 to $35 PMPY in 2016
	IS tax-deductible	NOT tax-deductible	IS tax-deductible
Who pays?	Fully Insured: insurance company pays, built into rates Self Funded: Per regulations, employers must calculate and pay own fee	Insurance company pays, Applies only to insured business, will be based upon each insurer’s share of the taxable health insurance premium base (among all health insurers of U.S. health risks)	FI: Full amount built into rates for 1/1/14+; partial load in 2013 SF: Client is liable, insurance company may pay on their behalf

2. Health Insurance Industry Fee

This fee, which is intended to help fund the cost-generating provisions of the PPACA, has a much greater financial impact than the other two fees discussed here.

The total annual amount of the Industry Fee is based on a fixed dollar schedule, which starts at $8 billion in 2014, and increases to $14.3 billion in 2018. Beyond 2018, the total annual fee amount will increase in direct proportion to the growth in health insurance premiums.

The fee will be divided among health insurance carriers based on each carrier’s share of the overall premium base, and will only be assessed relative to insured health plans, inclusive of medical, dental and vision plans. Self-funded health plans and associated stop-loss premium will not be included in the premium base.

The Industry Fee is not deductible for federal income tax purposes.  This substantially increases the cost impact, which is expected to be in the range of 2.0 to 2.5% of premium in 2014, increasing to 3.0 to 4.0% of premium in later years. Insurance companies will likely begin to reflect this additional cost in their premium rates in 2013 or 2014.

3. Reinsurance Assessment

This fee will fund a three-year reinsurance program designed to reimburse companies that insure high-cost individuals within the individual health insurance market. The assessment works on a fixed dollar schedule with the amounts decreasing year over year, and it is time-limited. The total amounts to be assessed are $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016, when it ends. The assessment applies to both insured and self-funded plans:

Insurance companies will likely pay the fee for fully insured plans, and self-funded clients will pay it themselves.

We encourage you to consult your legal/tax advisors if you have any questions regarding the new fees.