The U.S. Internal Revenue Service issued a final rule on Fees on Health Insurance Policies and Self-Insured Plans for the Patient-Centered Outcomes Research Trust Fund, published in the Federal Register on Dec. 6, 2012.
The rule provides guidance on the fees to fund the Patient-Centered Outcomes Research Trust Fund established by the Patient Protection and Affordable Care Act (PPACA). The fees will be imposed on insurers that issue health insurance policies and employers that sponsors self-insured health plans. The rule applies to policy and plan years ending on or after Oct. 1, 2012 and before Oct. 1 2019.
The PPACA establishes the nonprofit Patient-Centered Outcomes Research Institute (PCORI) to promote the use of evidence-based medicine by disseminating comparative clinical effectiveness research findings. The statute prohibits the Secretary of Health and Human Services (HHS) from using the evidence or findings of the research conducted in determining coverage, reimbursement, or incentive programs unless it is through an iterative and transparent process which includes public comment and considers the effect on subpopulations.
The PPACA imposes a fee on health insurers and employer who sponsor self-insured health plans, for each policy or plan year ending on or after Oct. 1, 2012, and before Oct. 1, 2019. The fee is $2 ($1 dollar in the case of policy years ending before Oct. 1, 2013) multiplied by the average number of lives covered under the policy or plan. For policy or plan years ending on or after Oct. 1, 2014, the fee is increased based on increases in the projected per capita amount of national health expenditures.
Scope of Fees Clarified
Among other points, the final rule clarifies that the fee imposed on an employer sponsoring a self-insured health plan is based on the average number of lives covered under the plan during the plan year.
Several commentators had requested that the final regulations provide that PCORI fees do not apply multiple times if accident and health coverage is provided to one individual through more than one policy or self-insured arrangement (for example, where an individual is covered by a fully insured major medical insurance policy and a self-insured prescription arrangement).
The final rule does not adopt the requested change. For example, for an employee covered by both a group insurance policy and a health reimbursement arrangement (HRA), the group insurance policy falls within the definition of a specified health insurance policy and the fee applies to the insurer, while the HRA falls within the definition of an applicable self-insured health plan, so that the fee applies to the plan sponsor.
The final rule also applies PCORI fees to policies and plans that provide accident and health coverage to retirees, including retiree-only policies and plans. And it states explicitly that COBRA and other types of continuation coverage must be taken into account in determining PCORI fees, unless the arrangement is otherwise excluded.
However, in response to comments, the final rule permits a self-insured health plan that provides accident and health coverage through fully insured options and self-insured options to determine the fee imposed by disregarding the lives that are covered solely under the fully insured options.
What Plans Are Subject to the
Comparative Evidence "PCORI" Fee?
Plans subject to the fee:
• Medical plans.
• Prescription drug plans.
• Self-insured dental or vision plans, if provided without a separate election or premium charge.
• Health reimbursement arrangements (HRAs).
• Retiree-only health plans (even though some are exempt from other PPACA mandates).
Plans exempt from the fee:
• Separately insured dental or vision plans.
• Self-insured dental or vision plans, if subject to separate coverage elections and employee contributions.
• Expatriate coverage provided primarily for employees who work and reside outside of the U.S.
• Health savings accounts (HSAs).
• Most flexible spending accounts (FSAs).
• Employee assistance programs (EAPs), wellness programs and disease management programs that do not provide "significant benefits in the nature of medical care or treatment."
Source: Pinnacle Financial Group, Patient-Centered Outcomes Research Fee Overview
Reconsidering Plan Designs
According to an alert from law firm Leonard, Street and Deinard, employers who sponsor multiple self-funded plans with the same plan year ends can aggregate those plans and pay the fee once on overlapping lives. However, because the fee is imposed on the plan sponsor and not on the plan itself, the employer must pay the fee outside the plan, meaning that plan assets cannot be used to pay the fee.
The law firm's alert also notes that:
Employers with self-funded high deductible health plans that are paired with self-funded HRAs can aggregate those plans and pay the fee once with respect to an individual covered by both the high deductible health plan and the HRA. In contrast, an employer that sponsors a fully insured high deductible health plan paired with a self-funded HRA will essentially be required to pay the fee twice on the same lives. The IRS concluded that because separate statutes impose the fee on plan sponsors of self-funded plans and insurance companies issuing fully insured policies, the IRS is unable to permit employers with both types of plans to combine them for purposes of determining the number of covered lives that they have.
Employers who sponsor self-funded HRAs with fully insured medical plans may wish to consider other plan designs to avoid this fee, such as self-funding the high deductible health plan or moving to a plan design that uses HSAs instead of HRAs. Alternatively, if there are relatively few people covered under the HRA and if the HRA has been an effective plan design, employers may simply decide to continue offering the plan and pay the additional fee.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Related External Articles:
Certain Plan Designs Will Cost More Under the Patient-Centered Outcomes Research Institute Fees, Leonard, Street and Deinard's Benefits Notes, December 2012
Patient-Centered Outcomes Research Fee Overview, Pinnacle Financial Group, December 2012
Related SHRM Article:
Prepare for the PPACA's Transitional Reinsurance Fee, SHRM Online Benefits, December 2012 (Note: the "transitional reinsurance fee" is a distinct fee, separate from the PCORI fee discussed in the above article)
SHRM Online Benefits page
SHRM Online Health Care Reform Resource Page