- On October 13, 2017
The most recent Congressional health reform effort failed in late September, but that doesn’t mean that there won’t be changes to 2018 benefit plans based on governmental action. A host of federal policies impacting prices and the calculation of health plan rates will go into effect for the upcoming plan year. They include a return of the national health insurance premium tax, new age rating rules for teenage children, and an increase in the Patient-Centered Outcomes Research Institute (PCORI) fee.
Complete Return of the HIT Tax
The national health insurance tax (HIT Tax) is a tax created by the Patient Protection and Affordable Care Act (ACA) on all fully-insured health insurance plans based on their “net premiums” written. In 2015, Congress voted to suspend collection of the tax for 2017 only, so its cost was not factored into last year’s premium rates. But in 2018, that suspension ends, and the tax will be back in full force affecting all fully-insured group coverage. The HIT tax is projected to raise $14.3 billion in 2018 and more in later years. The cost is passed through to consumers in the form of higher premiums, averaging out to be about $500 a year per family. Some health insurers will delineate the cost of the HIT tax separately on billing statements, but it may just be included in the overall premium rate. The HIT tax only impacts fully-insured coverage so self-funded plans will be unaffected by this specific cost increase.
New Small Group Age Rating Rules for Teenage Children
A federal regulation finalized last year will impact how fully-insured small group coverage is calculated and priced for 2018 on forward. Under prior ACA rules, unless a state petitioned to use a different formula, all children up to age 20 covered by fully insured small group and individual private health plans were charged 63.5 percent of the premium that applied to a 21-year-old. This rule is changing for 2018 to smooth the significant increase in price individuals used to endure when they turned 21. Now the cost for all children will be at least 76.5 percent of the base rate (a 13% hike). Prices for children age 15 and older will be slightly higher than that each year under the new rules.
For small businesses, the main impact of this change will be the overall price increase for child coverage. Additionally, in the small group market, employers will no longer be able to charge families a standard rate for adding children to the plan. Instead, premium rates and employee premium cost sharing will need to be calculated on a family-by-family basis according to the age of the children. For employees of small businesses with children on the group plan, coverage will be more expensive for all kids. Those people with children ages 15-18 will feel the effects of the increase the most.
According to the new rules, the rate for a 21-year-old will continue to be the base rate against which other prices are set in most states. However, effective January 1, 2018, unless a state petitioned last year for a change, the rating methodology for children in fully-insured individual and small group plans will be as follows:
- Children from age 0 to 14 will be charged 76.5 percent of the base rate
- Children age 15 will be charged 83.3 percent of the base rate
- Children age 16 will be charged 85.9 percent of the base rate
- Children age 17 will be charged 88.5 percent of the base rate
- Children age 18 will be charged 91.3 percent of the base rate
- Children age 19 will be charged 94.1 percent of the base rate
- Children age 20 will be charged 97 percent of the base rate
Eight states sought and received permission to alter the age-rating formula slightly for their jurisdiction in 2018, including New Jersey. However, New Jersey’s approved 2018 variation follows long-standing state law regarding small group market rates and only impacts standard adult rate calculations, not the rates for children. Children enrolled in small group and individual private health insurance coverage in New Jersey will pay according to the formula listed above in 2018.
In all state small group markets, adults will continue to be charged rates based on their age. The maximum rate an adult will pay will impact people age 64 and older, and they will pay three times the base premium (3:1 ratio). In most states, including Pennsylvania and Delaware, the rate charged to people ages 21-24 serves as the base rate, and individual premiums increase each year slightly until they reach their zenith of three times the base rate at age 64. In New Jersey, people ages 21-29 are charged 1.25 times the base rate, and then their premiums begin to increase a little more each year until they too are changed the maximum rate of three times the base rate at age 64.
PCORI Fee Increase
The Internal Revenue Service (IRS) raised the PCORI fee for plan years ending on or after October 1, 2017, and before October 1, 2018. Notice 2017-61 announced that the fee will rise from $2.26 to $2.39, affecting 2018 plan year rates. The increase is attributable to a rise in national health expenditures.
The PCORI fee is a small federal assessment on private health plans created by the ACA to fund a government-sponsored center to research the effectiveness of various medical care treatments. Health insurance carriers are responsible for paying the fee on behalf of all fully-insured health plan participants, so if your company offers coverage through a fully-insured plan, then the new increase will be built into your overall 2018 rates.
However, all self-insured medical plans, including health flexible spending accounts (FSAs) that do not qualify as an excepted benefit plans and health reimbursement arrangements (HRAs), have to pay the PCORI fee directly. The total number of people covered by the group plan, not just covered employees, determines the amount of the tax, and there are several methods an employer plan can use to make that count. Employers must complete and file Form 720 during the second quarter of the year and pay their 2017 PCORI fee by July 31, 2018.
By Jessica Waltman, Special Contributor
Jessica Waltman is a health reform strategist, with more than 20 years of experience in health insurance markets and health policy. She is the former Senior Vice President, Government Affairs, for the National Association of Health Underwriters.