Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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AFFORDABLE CARE ACT IMPLEMENTATION THAT WILL AFFECT REINSURERS

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The Department of Health and Human Services (“HHS”) has published a Notice of Proposed Rulemaking proposing the reinsurance payment parameters and uniform contribution rate for the 2015 benefit year and certain oversight/audit provisions for the transitional reinsurance programs required to be established in each state pursuant to the Patient Protection and Affordable Care Act to help pay the cost of treating high-cost enrollees in the individual market from 2014 through 2016. In addition to explaining both the operation of the HHS’s Affordable Care Act Health Insurance Model for estimating market enrollment and expenditure distributions, as well as the composition of the uniform contribution rate formula (which includes an annually decreasing reinsurance payment pool, contributions to the U.S. Treasury, administrative expenses, and an estimation of enrollees in plans required to make reinsurance contributions), the Notice also proposes for the 2015 benefit year (1) a uniform reinsurance contribution rate of $44 annually per enrollee in plans required to make required reinsurance contributions (versus $63 in 2014), (2) a $70,000 attachment point (versus $60,000 in 2014), (3) a $250,000 reinsurance cap (same as in 2014), and (4) a 50% coinsurance rate (versus 80% in 2014). Moreover, the Notice proposes to decrease the attachment point for 2014 from $60,000 to $45,000 to account for the HHS’s prior overestimation of the total covered claims costs of individuals enrolled in reinsurance-eligible plans in 2014. Lastly, the HHS proposes that if reinsurance contributions collected for a benefit year exceed the requests for reinsurance payments for the benefit year, the HHS would increase the coinsurance rate on its reinsurance payments, ensuring that all of the contributions collected for a benefit year are expended for claims for that benefit year.

This post written by Kyle Whitehead.

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THE EFFECT AND FATE OF THE ACA’S TRANSITIONAL REINSURANCE PROGRAM IS UNCLEAR

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On November 19, Senator Thune of South Dakota introduced S. 1724, the “Union Tax Fairness Act,” which proposes to provide that the reinsurance fee to be paid by health insurers and third-party administrators (on behalf of group plans) under the transitional reinsurance program of the Patient Protection and Affordable Care Act (“ACA”) be applied equally to all such issuers and administrators so that no special exemptions are available. This requirement would not be waivable. The bill (which can be read here) has been referred to the Committee on Health, Education, Labor, and Pensions. A companion house bill, H.R. 3755, was introduced by Congressman Perry of Pennsylvania on December 12 and has been referred to the House Committee on Energy and Commerce.

In other ACA reinsurance-related legislative activity, Congressman Tiberi of Ohio introduced on November 13 H.R. 3489, a bill to amend Section 1341 of the ACA to repeal entirely the funding mechanism for the transitional reinsurance program. The bill (which can be read here) reminds that the transitional reinsurance program was established to stabilize risk in the individual health insurance market during the first three years of the health insurance exchanges established by the ACA, but it then emphasizes (1) that the reinsurance fees to be paid to the U.S. Treasury serve as a disincentive for employers to continue offering coverage to all employees and (2) that employers do not receive any benefits of the program. That bill has been referred to the House Subcommittee on Health.

This post written by Kyle Whitehead.

See our disclaimer.

SPECIAL FOCUS: AN UPDATE ON CLASS ARBITRATION WAIVERS

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There has been a great deal of litigation over the past couple of years regarding the validity of class action arbitration waivers. In a Special Focus article, Re-Revisiting AT&T v. Concepcion: Yes, We Hear You Now (Mostly), John Pitblado provides an update on some of the most recent appellate cases in this area.

This post written by John Pitblado.

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WEST VIRGINIA SUPREME COURT SUPPLIES GUIDANCE ON COMPELLING CONSUMER ARBITRATION

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In the ongoing dialectic between West Virginia’s high court and the U.S. Supreme Court (e.g., Marmet Health Care Center Inc. v. Brown, 132 S. Ct. 1201 (2012)) regarding enforcement of arbitration provisions, the state court has issued its latest contribution. In West Virginia v. Webster, the Court heard an appeal from an order denying a motion to compel individual arbitration in a case arising from a dispute between Ocwen Loan Servicing, LLC (“Ocwen”) and mortgage holders, respondents Robert and Tina Curry (the case is styled to reflect the procedural posture of a writ of prohibition, which the state brings on behalf of the petitioner, against the trial judge). Ocwen sought to compel arbitration of a dispute about certain fees Ocwen charged, pursuant to an arbitration provision contained in the parties’ relevant agreement. The trial court found the agreement unenforceable under the Dodd-Frank Act, and also unconscionable under West Virginia state law contract principles. The high court reversed, finding the Act was not applicable because the agreement was formed before it took effect. The West Virginia Supreme Court also disagreed with the trial court’s conclusion that the contract was unconscionable, and entered granted the request for a writ prohibiting the trial court from enforcing its order denying the motion to compel. West Virginia v. Webster, No. 13-0151 (W. Va. Nov. 13, 2013).

This post written by John Pitblado.

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NONAPPEALABILIY CLAUSES IN ARBITRATION AGREEMENT HELD NOT ENFORCEABLE IN THE NINTH CIRCUIT

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Faced with a question of first impression, the Ninth Circuit recently held that a clause in an arbitration agreement that eliminates any and all federal court review of arbitration awards, including review under § 10 of the Federal Arbitration Act, is unenforeceable. The Court reasoned that allowing parties to “contractually eliminate all judicial review of arbitration awards . . . run[s] counter to the text of the FAA,” and “would also frustrate Congress’s attempt to ensure a minimum level of due process for parties to an arbitration.” In re Wal-Mart Wage and Hour Employment Practices Litigation, No. 11-17718 (9th Cir. Dec. 17, 2013).

This post written by Abigail Kortz.

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