Hunton Employment & Labor Perspectives

Health plan sponsors should be aware of new fees taking effect soon that are imposed by the Patient Protection and Affordable Care Act (ACA).  Here is a quick review of the fees as described in the recent proposed Treasury Regulations.

What are the fees for?

The fees will be used to fund the work of the Patient-Centered Outcomes Research Institute (PCORI), a private, nonprofit corporation established by ACA.  PCORI is broadly tasked with assisting patients, health care providers and policy makers with making informed health decisions.  PCORI will disseminate research on evidence based medicine and the clinical effectiveness of medical care to improve the quality and treatment of illness or injury.

Who must pay the fee?

The fees to fund the PCORI trust fund will be paid by issuers of health insurance policies and plan sponsors of self-insured group health plans.  Thus, for insured group health plans, the insurer, and not the plan sponsor, will be responsible for the fee.

When does the fee go into effect?

It is first effective for policy/plan years ending on and after October 1, 2012 and will last for seven years.  For a calendar year group health plan, the first year for which the fee must be paid is the 2012 policy/plan year, and the fee will be payable from that year through the 2018 policy/plan year.

What group health plans are subject to the fee?

In general, the fee applies to all employer-sponsored arrangements providing accident and health insurance coverage, including multiple employer welfare arrangements (MEWAs), healthcare reimbursement arrangements (HRAs) and stand-alone retiree health programs.  It does not include most healthcare flexible spending account (FSA) arrangements, health savings accounts (HSAs) and separate elective dental and vision programs. Employee assistance, disease management and wellness programs are not covered if they do not provide significant medical care or treatment benefits.

Stop-loss/indemnity reinsurance, disability income insurance, workers compensation, automobile medical payment insurance, and coverage for on-site medical clinics, also are excepted from the fees.

What is the amount of the fee?

For the first year, the fee is $1 multiplied by the “average number of lives” covered under the policy or plan (which generally includes both participants and their covered dependents) for the year. The fee increases to $2 in the second year and is subject to further percentage increases by the Health and Human Services (HHS).

How is the average number of covered lives to be determined?

A health insurer or plan sponsor can determine “average number of covered lives” by using

• the actual number of covered lives under the plan for the year,
• the average number on a specified date each quarter (basically, a “snap-shot” method) or
• the number of reportable participants for the Form 5500 (if one is filed for the plan).

For the first year, any reasonable method may be used. There is a special rule for covered HRA or health care FSA arrangements under which only participants (and not their dependents) must be counted. In addition, to avoid double counting, a plan sponsor can generally treat any of its covered programs that have the same plan year as one plan.

When/how must the annual fee be paid?

The fee must be paid annually using IRS Form 720 by July 31 of the calendar year following the close of the plan year.  For a calendar year plan, the first filing/payment will be due July 31, 2013.