Under the Patient Protection and Affordable Care Act (PPACA), health insurers and self-funded plan sponsors will be required to pay a tax called the comparative effectiveness research fee. The proceeds are to be used to support research conducted by a Patient-Centered Outcomes Research Institute. This research will be centered on the evaluation and comparison of health outcomes and clinical effectiveness, as well as the risks and benefits of medical treatments.
Calendar year plans will pay the fees from 2012 to 2018 and non-calendar year plans will pay the fees from the first plan year that ends on or after October 1, 2012 through September 30, 2019. All fees must be paid annually on IRA Form 720 by July 31st of the calendar year immediately following the last day of the plan year. These fees will not be required for dental and vision benefits that are insured separately. Retiree coverage is subject to the fee and special rules apply for HRA plans.
- For plan years ending October 1, 2012 – September 30, 2013 the fee is calculated by multiplying $1 by the average number of lives.
- For plan years ending October 1, 2013 – September 30, 2014 the fee is calculated by multiplying $2 by the average number of lives.
- For plan years ending October 1, 2014 and beyond the fee is an amount indexed to national health expenditures until 2019, when it is scheduled to end.
Under the proposed rule, third-party administrators (TPAs) will not be allowed to act for plan sponsors by filing the return or paying the fees. However, plan sponsors might need to obtain information about the number of covered lives from their TPAs in order to prepare the return and pay the fees.
Fee Calculation Methodologies
Counting Methods for Insurance Policies. The proposed regulations allow insurers to choose from four different methods to determine the average number of lives covered, as described below:
Employers and health plans may choose one option from the following:
- Actual Count Method: Add the total number of covered lives for each day of the policy year and divide by the number of days in the policy year.
- Snapshot Method: Add the totals of lives covered on one date in each quarter of the policy year (or more dates if an equal number of dates is used for each quarter) and divide by number of dates on which a count was made. The date(s) for each quarter must be the same (e.g., 1st day of quarter, last day of quarter, or 1st day of each month).
- Member Months Method: The sum of the totals of lives covered on pre-specified days in each month of the reporting period) as reported on the National Association of Insurance Commissioners (NAIC) Supplemental Health Care Exhibit filed for that calendar year. The average number of covered lives under the policies in effect for the calendar year equals the member months divided by 12.
- State Form Method: An insurer not required to file NAIC annual financial statements may calculate covered lives for the calendar year using a form filed with the insurer’s state of domicile and a method similar to the member months method, if the form reports the number of covered lives in the same manner as member months are reported on the NAIC Supplemental Health Care Exhibit.
Counting Methods for Self-Insured Plans. The proposed regulations provide plan sponsors the choice of using three different methods to determine the average number of lives covered by the plans, as described below:
- Actual Count Method: Plan sponsors may calculate the sum of the lives covered for each day in the plan year and then divide that sum by the number of days in the year.
- Snapshot Method: Plan sponsors may calculate the sum of the lives covered on one date in each quarter of the year (or an equal number of dates in each quarter) and then divide that number by the number of days on which a count was made. The number of lives covered on any one day may be determined by counting the actual number of lives covered on that day or by treating those with self-only coverage as one life and those with coverage other than self-only as 2.35 lives.
- Form 5500 Method: Sponsors of plans offering self-only coverage may add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, in each case as reported on Form 5500, and divide by 2. For plans that offer more than self-only coverage, sponsors may simply add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, as reported on Form 5500.
If you have any questions about this new fee please contact us and we would be happy to help you.
