Employer Benefit Plans’ Subsidy of Obamacare Increased

The administration has just increased the amount it will play plans under one of the “3 R’s” of Obamacare. Reinsurance, risk corridors, and risk adjustment are three mechanisms the administration uses to protect insurers from losing money in Obamacare.

Last year, I focused my efforts on limiting risk corridors, which exposed taxpayers to a potentially unlimited liability. This had a largely successful legislative result in Congress. Now, reinsurance has become a problem. As Ed Haislmaier of The Heritage Foundation has explained, reinsurance taxes all plans, including those covering the employer-based group market, to reduce risk in Obamacare.

Well, the administration collected more money than it expected from this tax:

Today, the Department of Health and Human Services (HHS) is pleased to announce that the national coinsurance rate for the 2014 benefit year for the transitional reinsurance program will be increased from 80 percent to 100 percent for non-grandfathered reinsurance-eligible individual market plans’ covered claims costs between the attachment point of $45,000 and the reinsurance cap of $250,000. HHS will remit payments to issuers starting in August 2015.

For the 2014 benefit year, reinsurance contributions exceeded the requests for reinsurance payments; therefore we have increased the coinsurance rate to 100 percent.

By November 15, 2015, the administration will have collected $9.7 billion from this tax. I expect that the remarkable rise in employer-based benefits concurrent with Obamacare has led to more tax revenue than expected.

Whatever the cause, is it right that this excess be turned over to Obamacare plans, which will receive more money than they had expected, rather than returned to the employer-based plans?

Comments (6)

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  1. John Fembup says:

    “. . . rather than returned to the employer-based plans?”

    Well, I agree – the excess should rightly be returned to its source.

    I suppose the administration views returning the money, to anyone, as a cost. But keeping the money – better yet spending it on a bigger benefit to its own signature plans – is a political free benefit.

    Cost vs free benefit. Not a hard choice for most political types.

  2. Don Levit says:

    If there was a deficit who would pay it?
    Don Levit

    • John Fembup says:

      “If there was a deficit who would pay it?”

      The reinsurer(s), of course. Just like in the real world.

  3. Underwriterguy says:

    Sort of like in a contributory plan that has a surplus under a retrospectively experience rated plan. Do the employees who contributed get a proportional share of the returned cash? Hah.

    • John Fembup says:

      “Do the employees who contributed get a proportional share of the returned cash? Hah”

      Underwriterguy, it’s true that, historically anyway, members in group insurance plans almost never got premium refunds. As I recall, there are legal and practical reasons for that.

      Obamacare changes this picture because each insurer is now required to rebate a portion of premiums, if it fails to meet specified “Medical Loss Ratios” or MLRs, within its service areas and product lines.

      I don’t know whether Obamacare requires insurers (and/or plan sponsor) to develop systems for allocating and returning rebates to plan members. If that is what Obamacare requires, then the impracticality of making member-level returns of excess underwriting surplus would seem to become a non-issue.

      Bottom line—Obamacare may result in more frequent refunds to employees in the future. (Of course, it won’t take much to be more frequent than zero.)

      • Thank you. I refer to this special circumstance of the reinsurance fund, which only exists through 2016. Rebating the levy is not (I think) authorized by the law, which means maybe Congress should re-open it?