The IRS has issued proposed regulations regarding the fees imposed by health care reform on health insurers and on sponsors of self-insured health plans to support clinical effectiveness research by the new Patient-Centered Outcomes Research Institute (sometimes referred to as CER or PCOR fees). The fees apply only to policy or plan years ending after Oct. 1, 2012, and before Oct. 1, 2019 (i.e., for seven full plan years). For years ending before Oct. 1, 2013, the fee is $1 times the average number of covered lives under the policy or plan. For later years, the fee rate increases to $2, subject to adjustment based on changes in per capita National Health Expenditures as reported by the Treasury.
Here are some highlights of the proposed regulations (which may be relied upon pending the issuance of final regulations):
• Affected Policies and Plans
- The fees paid by insurers generally apply to any accident or health insurance policy issued with respect to U.S. residents.
- The fees paid by self-insured plan sponsors generally apply to plans established or maintained by an employer or employee organization (or by certain other entities, including VEBAs) that provide health or accident coverage, so long as any portion of that coverage is not provided through an insurance policy. Policies and plans are not subject to the fees if they cover only excepted benefits.
- Also exempt are EAPs, disease-management programs, and wellness programs if they do not provide significant benefits in the nature of medical care or treatment.
- No exclusion is provided for retiree-only plans.
- Comment: Under the proposed regulations, plan sponsors of fully insured health plans are not responsible for the fees; only plan insurers are.
• Definition of Self-Insured Plan Sponsor
- Controlled group rules do not apply to PCOR fees. Consequently, if a plan is maintained by more than one employer, each employer that maintains the plan will generally be responsible for filing and paying its portion of the fees.
- This result may be avoided if — before reporting and payment is due — an employer is designated in the plan document as sponsor, or designated as plan sponsor for purposes of the PCOR fee rules.
• Multiple Self-Insured Arrangements
- If the same plan sponsor maintains more than one arrangement that provides self-insured accident or health coverage — e.g., if the 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.
- Comment: It seems unlikely that the minimal integration required in this context will be sufficient in other contexts, such as in connection with the exception to health care reform’s annual limit restrictions.
• Average Number of Lives Covered:
- For self-insured plans, any one of three methods may be used to determine the average number of lives covered:
– an “actual count method” that takes into account the lives covered on each day during the plan year;
– a “snapshot method” based on the lives covered on one day during each quarter of the plan year (the snapshot method permits the number of lives covered by family coverage to be estimated by multiplying the number of participants by 2.35); or
– a “Form 5500 method” based on the number of participants as of the beginning and end of the plan year as reported on Form 5500 (under the Form 5500 method, the total number of lives is determined by simply adding the participant counts at the beginning and end of the year).
- Insurers cannot use the Form 5500 method, but they can use the actual count and snapshot methods as well as two other methods based on information reported to the NAIC or state regulators.
- For health FSA and HRA coverage that is not disregarded under the rule for multiple self-insured arrangements (or because it offers only excepted benefits), each participant can be treated as a single life, regardless of how many other individuals (e.g., spouse, dependents, and other beneficiaries) are actually covered.
• Payment Process and Timing
- PCOR fees are to be reported and paid once a year, even though they are reported on IRS Form 720 (Quarterly Federal Excise Tax Return).
- Reports and payments for policy and plan years that end in a calendar year are generally due by July 31 of the following year.
- Comment: While the amount of the PCOR fee is, by itself, unlikely to drive plan design, it is one more factor to be taken into account. It may be most significant with respect to health FSAs and HRAs, since failing to adequately integrate one of these account-based plans with a sponsor’s self-insured major medical coverage (or to restrict the plan to excepted benefits) can result in effectively doubling the amount of the fee. (Note that integration with insured coverage will not lower total fees paid since the fee for insured coverage is paid by the insurer.)
The full text of the proposed regulation is available at http://www.gpo.gov/fdsys/pkg/FR-2012-04-17/pdf/2012-9173.pdf.