Proposed Rule on Comparative Effectiveness Fees: On April 12, 2012, the IRS issued proposed regulations addressing the fees imposed by the Affordable Care Act on certain health plan issuers and plan sponsors of self-funded health plans. These fees will support the Patient-Centered Outcomes Research Trust Fund, which will conduct comparative effectiveness research. They will be imposed for each policy year ending on or after October 1, 2012 and before October 1, 2019.
These proposed regulations (which may be relied upon pending the issuance of final regulations) outline the following:
What plans or policies are affected?
Fully insured plans providing accident or health insurance for individuals living in the U.S.
Self-funded plans established and maintained by an employer or employee organization to provide accident and health coverage, unless any portion of that coverage is provided through an insurance policy. This includes retiree-only plans.
Exemptions
• Stop-loss policies or indemnity reinsurance policies
• Plans providing “excepted benefits”
• Employee Assistance Programs (EAP), Disease Management Programs, or Wellness Programs that do not provide significant benefits relative to medical care or treatment.
Health FSAs and HRAs are not exempted, unless considered an excepted benefit. However, if the plan sponsor maintains an HRA or health FSA in addition to major medical coverage, the arrangements can be treated as a single self-insured health plan if the arrangements have the same plan year.
Who is subject to the fee?
Fully-Insured Plans: The plan issuer (not the plan sponsor) is subject to the fee.
Self Funded Plans: The plan sponsor is subject to the fee. Plan sponsors include employers, employee organizations or certain other entities including VEBAs. This does not include exempt government plans.
Control Groups: Controlled group rules are not applicable so that each employer that maintains a plan will be responsible for filing and paying its portion of the fee.
How much is the fee?
For plan or policy years ending between October 1, 2012 and October 1, 2013, the fee is one dollar multiplied by the average number of covered lives under a plan or policy.
The fee increases to two dollars for plan or policy years ending after October 1, 2013 and before October 1, 2014.
For plan or policy years ending on or after October 1, 2014, the fee is increased based on increases in the projected per capita amount of National Health Expenditures.
How is the average number of covered lives calculated?
The fee is to be based on the average number of lives in the plan, which can be calculated in one of three ways:
Self Funded Plans
• Form 5500 Method: The number of participants as of the beginning and end of the plan year as reported on Form 5500.
Self-Funded and Fully Insured Plans
• Actual Count Method: The sum of lives covered for each day of the policy year divided by the sum of the number of days in the policy year.
• Sanpshot Method: The sum of lives covered on one date in each quarter of the policy year (or an equal number of dates for each quarter), divided by the total number of dates used. The number of lives covered by family coverage can be estimated by multiplying the number of participants by 2.35.
Insurers of fully insured plans can also use two other methods based on information reported to the NAIC or state regulators.
Health FSA and HRA coverage that is not counted along with the plan sponsors major medical plan (and is not considered an excepted benefit) can treat each participant as a single life regardless of how many other dependents are also covered.
How and when are the fees paid?
The fees must be reported once a year on IRS Form 720. This form must be filed and fees paid on July 31 of the calendar year immediately following the last day of the plan year.
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