PPACA section 6301 amended Title XI of the Social Security Act to establish the Patient‐Centered Outcomes Research Institute (PCORI), which is generally tasked with conducting research to evaluate and compare the clinical effectiveness, risks and benefits of various medical treatments, services, procedures, drugs, and other strategies that treat, manage, diagnose or prevent illness or injury. See “SECOND OPINIONS: Comparative Effectiveness Fees – Part I.”
PPACA also amended the Internal Revenue Code (Code) to create the Patient‐Centered Outcomes Research Trust Fund (Trust Fund) (new Code § 9511) to fund the Institute, and to impose new annual fees on health insurers and sponsors of self-insured health plans to help fund the Trust Fund (new Code §§ 4375-4377). These fees are effective for policy or plan years ending on or after October 1, 2012, and before October 1, 2019.
On April 17, 2012, the IRS published a proposed regulation on the implementation of the PCORI fee (Fees on Health Insurance Policies and Self-Insured Plans for the Patient-Centered Outcomes Research Trust Fund; 77 Fed. Reg. 22,691) (Proposed Regulation). The Proposed Regulation generally provides guidance on the plans and policies to which the fees apply, as well as the mechanics of calculating and paying the fees.
How is the fee calculated?
In general, sponsors of self-insured plans subject to the fee may use one of three alternative methods to determine the average number of covered lives for purposes of calculating the fee: the actual count method, which is generally based on the lives covered for each day of the plan year; the snapshot method, which is generally based on the lives covered on one day during each quarter of the plan year; or the Form 5500 method, which is generally based on the number of participants as of the beginning and end of the plan year as reported on the sponsor’s Form 5500.Insurers that have issued a “specified health insurance policy” generally may use the actual count method or snapshot method (but not the Form 5500 method), or one of two other alternative methods: the member months method, which is generally based on information reported on the National Association of Insurance Commissioners (NAIC) Supplemental Health Care Exhibit; or the state form method, which is available to an insurer that is not required to file an NAIC Supplemental Health Care Exhibit and is generally based on information that is filed with the insurer’s state insurance department.
May a plan sponsor or insurer switch between calculation methods?
A plan sponsor must use the same method to calculate the average number of covered lives for a particular year, but may switch between methods from one plan year to the next. For the first plan year the fee is in effect, a plan sponsor may use any reasonable method for determining the average number of covered lives.
How do the fees apply in the case of a plan sponsor that offers employees a self-insured, major medical plan as well as a health FSA or HRA?
The Proposed Regulation provides generally that multiple self-insured arrangements established and maintained by the same plan sponsor and with the same plan year are subject to a single fee. The regulation provides, for example, that if a sponsor provides employees with a health reimbursement account (HRA) that is integrated with another applicable self-insured plan that provides major medical coverage, the HRA and major medical plan may be treated as one plan for purposes of the fee. The Proposed Regulation also provides special rules for health FSAs and HRAs under which a sponsor that does not maintain another applicable self-insured health plan other than the FSA or HRA may treat each participant's FSA or HRA as covering a single covered life (i.e., the sponsor would not have to count the spouse, dependent, or other beneficiaries of the participant).
How and when are the fees paid?
The Proposed Regulation provides that plan sponsors and insurers will report and pay the fees as part of IRS Form 720, Quarterly Federal Excise Tax Return, but the fees will be paid only once per year and generally will be due by July 31 of the following year.
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You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html
Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C. She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare. She represents employers designing health plans as well as insurers designing new products. Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.
Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.
PLEASE NOTE: This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.