The Internal Revenue Service issued a final rule addressing new fees on insurers and plan sponsors under health care reform.
These fees are intended to help finance the Patient-Centered Outcomes Research Institute (PCORI) which is a private, nonprofit corporation tasked with assisting patients, clinicians, purchasers and policy makers in making informed health decisions by "advancing the quality and relevance of evidence-based medicine through the synthesis and dissemination of comparative clinical effectiveness research findings." The Affordable Care Act imposes these fees on issuers of certain health insurance policies and on plan sponsors of certain self-insured health plans. Fees will be assessed for plan years ending on or after October 1, 2012 and before October 1, 2019.
The final rule provides guidance on the PCORI fee as it applies to sponsors of group health plans. Specifically, the regulations define the plans and policies subject to the fees.
Who Pays the Fee. The insurer is generally responsible for paying the fees for an insured plan, while the plan sponsor generally pays the fee for a self-funded plan. The guidance defines a "health insurance policy" subject to the fee as any accident or health insurance policy, including a policy under a group health plan, issued to US residents. Plans of HIPAA excepted benefits are not subject to the fee, nor are plans such as EAPs, disease management programs, or most wellness programs. Retiree-only poicies and plans may be subject to the fee, and COBRA coverage is generally included in determining the amount of the fee, unless the COBRA coverage is for an excepted benefit. An FSA that is an excepted benefit is also not subject to the fee.
Amount of the Fee. The fee is $2 ($1 for the first plan year) multiplied by the average number of covered lives under the plan or policy. Starting in 2014, the PCORI fee will be increased based on increases in national health care expenditures. For the first plan year beginning before July 11, 2012 and ending on or after October 1, 2012, the plan sponsor can use any reasonable method for determining the average number of covered lives. For subsequent plan years, self-funded plans can calculate the average number of lives for fee purposes in one of three ways:
- Actual Count Method. Actually count the number of covered individuals on each day and divide the total by the number of days in the year;
- Snapshot Use Method. Use information from a selected day each quarter to determine the average number of lives. If this method is used, a date certain must be used in the first, second, or third month of each quarter. For subsequent quarters, the date must be within three days of the date used in the first quarter;
- Form 5500 Method. A plan sponsor may determine the average number of lives covered under a plan based on the number of participants reported on Form 5500.
There are two alternative methods for determining the fee applicable to insurers:
- Member Months Method. An insurer can determine the average number of lives covered under all policies in effect for a calendar year based on the member months (the sum of the totals of lives covered on pre-specified days in each month of the reporting period) reported on the NAIC Supplemental Health Care Exhibit filed for the year; and
- State Form Method. An insurer that is not required to file a NAIC statement may determine the number of lives covered under all policies in effect for the year using a form filed with the issuer's state.
Retirees are counted in the average number of covered lives. Insurers may use similar calculation methods based on policy year (except for the Form 5500 method which is replaced by reference to state filings). The same calculation must be used consistently throughout the plan year, but may be changed in subsequent plan years.
How to Report and Pay Fee. The fee is reported on IRS form 720. It has to be paid annually, by July 31 of the year following the year of assessment. The first PCORI fee will be due July 31, 2013.
The regulations include examples of how the PCORI fee will be calculated and applied, including examples clarifying the application of the fee to an HRA.
