A Closer Look at the Reinsurance Fee - NYTimes.com

Though a tax on medical devices has been a point of contention in the negotiations over the fiscal standoff, the Senate proposal that would end the government shutdown and raise the debt limit is likely to include instead a one-year delay of another tax associated with the Affordable Care Act — the so-called reinsurance tax, which employers pay.

The reinsurance tax is one of several measures intended to stabilize premiums in the individual insurance market as major provisions of the health care law take effect in January. The fees, to be charged from 2014 to 2016, will provide money to insurers that incur high claims for consumers in the individual insurance market, both inside and outside the new exchanges, or marketplaces. Insurers are apprehensive that some of their new customers, having been uninsured for years, will have costly existing conditions.

The fees are to be paid by insurers in the individual, small group and large group markets, as well as by employers that serve as their own insurers.

A delay in the implementation of the tax is popular with both employers and labor unions, many of which provide health coverage to members, because it would put off significant new costs.

The government set the fee for 2014 at $63 per covered life, or $5.25 a month. Insurers and some self-insured employers may have to pay not only for subscribers and employees, but also for spouses and children who are covered.

The total amount of fees to be collected over three years is $25 billion. Of that amount, $20 billion will go to the reinsurance program and $5 billion to the Treasury.

“The primary purpose of the reinsurance program is to stabilize premiums in the individual market from 2014 through 2016,” the Obama administration said when it proposed the rules in December 2012. “The reinsurance program is designed to protect against issuers’ potential perceived need to raise premiums due to the implementation of the 2014 market reform rules, specifically guaranteed availability.’’

The tax, the administration said, should alleviate the concerns of insurance companies about the risk of “high-cost claims from newly insured individuals.’’