The Health Care Reform law provides that each State operating an Exchange must establish a transitional reinsurance program to help stabilize premiums for coverage in the individual market during the first three years of Exchange operation. Beginning January 1, 2014, reinsurance programs will include three key elements: State-established reinsurance entities will administer the program; health insurance issuers and third party administrators on behalf of group health plans will be required to pay reinsurance fees to the reinsurance entity; and, the State reinsurance entities will use the fees to make reinsurance payments to health insurance issuers in the individual market. Reinsurance payments will be a specified coinsurance amount for claims incurred above an attachment point and below a reinsurance cap.

For each year in the three-year period, HHS will issue an annual notice specifying a national reinsurance fee and the applicable reinsurance parameters (the coinsurance rate, the attachment point and the reinsurance cap). The national reinsurance fee will be based on an estimate of total premiums (for insured plans) and total medical expenses (for self-funded plans). Health insurance carriers and third party administrators will be required to provide data on premiums and enrollees (for insured plans) and covered lives and total medical expenses (for self-funded plans). Details regarding the data submission requirements and the time and manner for paying reinsurance fees will be provided in future guidance.

Plan sponsors are not required to pay Exchange reinsurance fees directly. It is likely, however, that health insurance issuers and third party administrators will pass these costs on to plan sponsors.