The Affordable Care Act established the nonprofit Patient-Centered Outcomes Research Institute to promote the use of evidence-based medicine by disseminating comparative clinical effectiveness research findings. This new Institute, which is funded in part by fees collected from insurers and plan sponsors, will ideally help patients and clinicians to make better informed health care decisions. The fees, which are treated as an excise tax, are often referred to as the “PCORI fees”, “PCOR fees” or “CER fees”.
Insurers are responsible for remitting the fees for “specified health insurance policies” while plan sponsors of “applicable self-insured health plans” are responsible for calculating and paying the PCORI fees. The chart below identifies who is responsible for reporting and remitting the fees:
*Medical FSAs that are funded by “flex credits” or provide benefits in excess of the salary reduction contribution (i.e., account includes employer contributions) are likely subject to the fee. FSAs that include expanded eligibility could be subject to the fee, as well.
Annual Fee Schedule
Plan years* ending October 1, 2012 – September 30, 2013: $1 Per Member for Year
Plan years* ending October 1, 2013 – September 30, 2014: $2 Per Member for Year
Plan years* ending October 1, 2014 up to September 30, 2019: Not determined yet
*Policy years when health plan is fully insured
When to Remit PCORI Fees
As communicated in a previous HBI compliance update, the Patient Centered Outcomes Research Institute fee is due by July 31, 2013 for plan years that ended on or after October 1, 2012 and before January 1, 2013. The annual fee due by July 31, 2013 is $1 per plan member. Plan years ending January 1, 2013 through September 30, 2013 will owe their first $1 per member fee by July 31, 2014. For all plans the second year fee increases to $2 per member, and then it is adjusted each year thereafter based on increases in the projected per capita amount of national health expenditures. The fee ends in 2019.
Preparing for First Payment
If you are a plan sponsor and one or more of the accident or health plans you provide is a self-insured arrangement with a plan year that ended sometime during fourth quarter 2012, now is the time to evaluate the different methods available for calculating the fees. The final regulations do not permit third-party reporting or payment of the fees, therefore, plan sponsors are required to remit fees directly to the IRS.
Reporting of the Fees on IRS Form 720
The fees are to be reported and paid once a year even though they are reported on an IRS Form 720 which is a Quarterly Federal Excise Tax Return form.
Plans and Benefits Subject to the Fees
A “specified health insurance policy” or “applicable self-insured health plan” is an accident or health program designed or issued to cover individuals residing in the U.S.The regulations indicate that an insurance policy or self-insured plan that covers retirees and COBRA participants is subject to the fees, as well.
A Health Reimbursement Arrangement (HRA) that is designed to reimburse employees for certain out-of-pocket health plan expenses, like deductibles, coinsurance, co-pays, etc. consists of a promise by an employer to reimburse qualified medical expenses. As a result of this commitment to reimburse health expenses, this type of HRA is subject to the PCORI fees. A health Flexible Spending Account (health FSA) that receives contributions from the employer is also subject to the fees. Both the HRA and FSA described above are labeled as “non-excepted” account-based spending accounts and both are considered self-insured group health plans.
Plans that are not Subject to the Fees
The fees do not apply to an insurance policy or self-insured plan where the facts and circumstances show that the plan was designed or the policy was issued specifically to cover primarily employees who are working and residing outside theUnited States(i.e., Expatriate health plan).
Most EAPs, disease-management and wellness programs are also exempt unless they provide “significant” benefits in the nature of medical care or treatment. Further guidance would be welcome since “significant” has not been clearly defined with respect to medical care and treatment.
We have provided a chart below that summarizes the benefit plans NOT subject to the PCORI fee:
** Most medical FSAs that are designed to include a maximum benefit equal to the salary reduction (i.e., no employer contributions or flex credits) will be exempt from the fee. Major medical coverage must be made available to participants for the year by reason of employment.
Calculating Fees for Sponsors of Self-Insured Plans
The regulations provide plan sponsors with self-insured plans an option to use any of three different counting methods. Although a plan sponsor may only apply one single method in determining the average number of lives covered under the plan for the entire plan year, it is not required to use the same method from one plan year to the next.
Actual Count Method
Plan sponsors may determine the average number of members (total lives) covered under the plan for the plan year by calculating the sum of the lives covered for each day of the plan year and dividing that sum by the number of days in the plan year. This method is called the “actual count method”.
Plan sponsors may also determine the average number of lives covered under the plan for the plan year by adding the totals of lives covered on a date during the first, second, or third month in each quarter, or an equal number of dates for each quarter, then dividing that total by the number of dates on which a count was made.
This is called the “snapshot method”. The regulations do not require that a specific date be used for each month or quarter, but do provide specific rules to ensure that similar dates are used each month (i.e., dates used in each quarter should be within 3 days of the other dates used).
In addition, there are two methods within the snapshot method to count family members. One method, the “snapshot count method”, requires the plan to count the actual number of lives covered on the designated date. For plan sponsors that have the capability to run a report that captures actual covered members, this appears to be the simplest approach. The other method, the “snapshot factor method”, allows the plan to count the number of participants with self-only coverage on the designated date, plus the number of participates with coverage other than self-only coverage on the designated date multiplied by 2.35.
Form 5500 Method
The third option, the “Form 5500 method”, permits plan sponsors to determine the average number of lives covered under the plan for the plan year based on a formula that includes the number of participants actually reported on the Form 5500 for the plan year. A plan sponsor only may use this method if the Form 5500 is filed no later than the due date for the fee imposed for that plan year. Under this method, the total number of lives is determined by simply adding the total participant counts at the beginning and end of the year and dividing by 2 for a plan that only offers single coverage. If a plan offers single coverage along with other coverage (e.g., family coverage), the total number of lives is determined by adding the total participant counts at the beginning and end of the year (without dividing by 2).
Important Note: While it makes sense for employers to use this method if they have more than 2 members covered per contract, it probably does not make sense to use this method if the employer wraps all ERISA plans into one single 5500 filing (i.e., “wrap Plan” or “mega-wrap Plan”). This is because generally the employer reports the life insurance participants in the wrap filing, not the health plan participants. In many cases there are more participants in a company paid life plan than there are in a contributory health plan.
Counting for Account-based Plans
Stand-alone plans -If a plan sponsor does not establish or maintain an applicable self-insured health plan other than a non-excepted health FSA or HRA, the plan sponsor may treat each participant’s health FSA or HRA as covering a single life (spouses and dependents are not counted). This means that the plan sponsor is not required to include dependents as “lives” under these plans, but instead, only is required to count the employee – i.e., “one life per participant rule”
HRAs integrated with insured coverage – If a plan sponsor has other coverage, but that coverage is fully insured, the plan sponsor generally must remit the PCORI fees with respect to the average number of lives covered by the HRA in addition to the fees that will be paid for the insured plan by the insurer. The HRA’s covered lives will be determined using the “one life per participant rule”. (Note, however, that the plan sponsor may disregard the lives covered solely under the fully insured option when counting the number of lives for HRA purposes.)
HRAs integrated with self-funded coverage. – If the same plan sponsor has another applicable self-insured health plan with the same plan year, then each person covered by both plans is only counted once. The individuals covered by both plans are counted using the counting method for the other applicable self-insured health plan (Form 5500 method, Actual Count, Snapshot). The one life per participant rule does not apply to this self-insured health plan package. Please note however, that if the HRA covers anyone who is not also covered under the other plan, the sponsor must pay the fee for those individuals using the one life per participant rule.
Special Transition Rules
The final regulations permit a plan sponsor of an applicable self-insured health plan to use any reasonable method to determine the average number of lives covered under an applicable self-insured health plan for a plan year that began before July 11, 2012 and ended on or after October 1, 2012.
Example: Plan year January 1, 2012 – December 31, 2012. Because this plan year began before July 11, 2012 and ended on or after October 1, 2012, the plan sponsor can use any reasonable method for determining the average number of covered lives on the plan for the first PCORI fee payment, due by July 31, 2013.
Example: Plan year August 1, 2012 – July 31, 2013. Because this plan did NOT begin before July 11, 2012, this self-insured plan sponsor must rely on one of the three counting methods summarized previously. This plan sponsor does not need to remit its first annual $1 per member fee until July 2014.
Please note that the information contained in this document is designed to provide authoritative and accurate information, in regard to the subject matter covered. However, it is not provided as legal or tax advice and no representation is made as to the sufficiency for your specific company’s needs. This document should be reviewed by your legal counsel or tax consultant before use.
Additionally, the messages and content within the Pittsburgh Health Care Reform group do not reflect the advisory services of Henderson Brothers, Inc.
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