• The Employer's Affordable Care Act (ACA) Compliance Playbook: Comparative Effectiveness Fees -- AKA Patient-Centered Outcome Research Trust Fund Fees
  • October 19, 2012 | Authors: Sarah Lockwood Church; Paul A. Kasicky; Joni L. Landy; Kevin A. Wiggins
  • Law Firm: Thorp Reed & Armstrong, LLP - Pittsburgh Office
  • The guidance provided in this communiqué is based upon Proposed Treasury Regulations issued on April 17, 2012. Therefore, final regulations could significantly modify this analysis. Sponsors of self-insured plans should take into account these fees in planning their budgets for 2013.

    What are the Patient-Centered Outcome Research Trust Fund Fees?

    The ACA added Sections 4375, 4376 and 4377 to the Internal Revenue Code of 1986 (Code).  These new Code sections impose fees on issuers of certain health insurance policies (each called a "specified health insurance policy") and on plan sponsors of certain self-insured plans (each called an "applicable self-insured health plan").  While the fees on fully-insured arrangements are imposed on the issuers of the underlying group health insurance policies, it is anticipated that these fees will be passed on to the policyholder (employer).  Plan sponsors of self-insured plans will need to determine how many "applicable self-insured health plan" they offer that will be subject to the fee.  These fees will be used to fund a Patient-Centered Outcome Research Trust Fund (Trust).

    What is the purpose of the Trust?

    The Trust will be used to fund a private, nonprofit corporation called the Patient-Centered Outcomes Research Institute (Institute).  The Institute "will assist, through research, 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."[1]

    When will these fees be due and how are they paid?

    The fees are treated as taxes under the Code and will be imposed for each policy or plan year ending on or after October 1, 2012.  The fees will not be imposed for policy or plan years ending after September 30, 2019.[2]  For calendar-year policies and plans, the fees will be due for calendar year 2012 and must be filed on or before July 31, 2013, using IRS Form 720, which is the "Quarterly Federal Excise Tax Return."[3]

    How much are these fees?

    The fees are $2 for the first plan year ending after September 30, 2013 (indexed thereafter) multiplied by the "average number of covered lives" under specified health insurance policy and/or applicable self-insured health plan; provided that for the first year the fee is only $1 multiplied by the average number of covered lives.

    What plans are subject to the fees?

    Group health plans, such as medical plans, are subject to the fees if they are insured or self-insured.  However, certain other group health plans will not be treated as either a "specified health insurance policy" or "applicable self-insured health plan" if substantially all of the coverage provided consists of "excepted benefits" and described in Code Section 9832(c).[4]  These excepted benefits generally include dental and vision care programs issued under separate policies.  The Preamble to the Proposed Treasury Regulations acknowledges that certain other programs that are not treated as "excepted benefits" under Code Section 9832(c) should be exempt from these taxes, including employee assistance programs (EAPs), disease management programs, and wellness programs.[5]  Therefore, under the current guidance, those programs will not be treated as "applicable self-insured plans" requiring payment of a separate fee.[6]  Although exempt for other ACA purposes, the proposed Treasury Regulations do not appear to exempt retiree-only medical plans from the fee.

    Health reimbursement arrangements (HRAs), which are always self-insured, will be an "applicable self-insured health plan" and subject to a separate fee unless it is integrated with another "applicable self-insured health plan."  A medical flexible spending arrangement or FSA, which is also always self-insured, will be an applicable self-insured health plan, subject to a separate fee, unless it is integrated with another applicable self-insured health plan or otherwise is an "excepted benefit" under Code Section 9832(c).  This means that if an employer maintains a group health plan through a fully-insured arrangement, the "specified health insurance policy" providing group health benefits will be subject to the fee (which will more than likely be passed on to the employer) and the employer will be required to pay a fee on any self-insured FSA or HRA that it provides to its employees.  The fee does not apply to stop-loss policies.

    Who has to be counted for determining a policy or plan's "average number of covered lives?"

    For most programs, covered lives will include both the employee and any dependents who are covered by the "specified health insurance policy" or "applicable self-insured health plan." However, with respect to certain types of arrangements, such as an FSA or HRA, only the employee with such accounts are treated as a "covered life" if they do not participate in any other self-insured program maintained by the same employer that, together with an FSA or HRA, will be treated as just one plan.[7]

    How are the "average number of covered lives" determined?

    The Proposed Regulations will permit the insurer to calculate the average number of covered lives under a specified health insurance policy using one of four methods.  These methods include using an actual count method, a snapshot method, a member months method and a state form method.  While the carrier can change its method from year-to-year, it must use the same method for all policies for which a fee is due for any policy year.[8]

    Plan sponsors of "applicable self-insured plans" can use one of three methods:  an actual count method, a snapshot dates method, and a Form 5500 method.  Again, while a plan sponsor can change its method from year-to-year, the plan sponsor must use the same method for all plans for which a fee is due for any plan year.[9]

    Do governmental plans have to pay this fee?

    This fee will apply to non-federal governmental self-insured plans and to policies issued for fully-insured arrangements covering employees of non-federal governmental entities.[10]

    Can the fees be paid from plan assets?

    The Proposed Regulations indicate that the Department of Labor and Treasury are considering to what extent these taxes can be paid from plan assets, which is of particular importance to the boards governing multiemployer health care programs.

    [1] See:  Preamble to Proposed Treasury Regulations, Fed. Reg. Vol. 77, No. 74, issued April 17, 2012, at p. 22692.

    [2] See:  Code Section 4375(a) and (e) and Code Section 4376 (a) and (e).

    [3] See:  Proposed Treasury Regulation § 40.6011(a)-1.

    [4] The so-called "retiree-only" plans are exempt from most provisions of the ACA under Code Section 9831(b) and are therefore, not exempt from the fees imposed under Code Sections 4375 and 4376.

    [5] Id., at p.22695.

    [6] See:  Proposed Treasury Regulation § 46.4376-1(b)(ii)(B).

    [7] See:  Proposed Treasury Regulation § 46.4376-1(c)(6).

    [8] See:  Proposed Treasury Regulation § 46.4375-1(c)(2).

    [9] See:  Proposed Treasury Regulation § 46.4376-1(c)(2).

    [10] See:  Treasury Regulation § 46.4377-1(b)(1).