The IRS has released final regulations for two new health insurance fees. Created by the Affordable Care Act, the Patient-Centered Outcomes Research Institute fee ("PCORI Fee") and the Transitional Reinsurance fee ("Reinsurance Fee") apply to fully insured and self-insured medical plans. While the Reinsurance Fee is designed to help stabilize health care premiums in a shifting insurance market, the PCORI Fee is intended to help drive medical research pertaining to clinical effectiveness, procedures, drugs, and risks and benefits of medical treatments. The due dates and years to report vary under the PCORI and Reinsurance Fees; however, the subjected plans and methods for determining who is covered are closely related under both.

PCORI Fee

On December 6, 2012, the IRS issued final regulations for the PCORI Fee. The fee applies to health insurers and plan sponsors of self-insured group health plans for each policy year ending on or after October 1, 2012 and before October 1, 2019. For the first plan year ending on or after October 1, 2012, the fee is $1.00 for each covered life. In the following plan year, the fee increases to $2.00 per covered life and will be adjusted in future years for inflation. A covered life includes all employees, spouses, domestic partners and dependent children covered by the plan.

PCORI Fees should be reported and paid once per year using the Form 720, which became available online in early June. Plan sponsors of self-insured group health plans and calendar year plans are required to pay the 2012 fee by July 31, 2013. The fee applies to group health plans, such as major medical (self-insured and insured) plans, COBRA coverage, prescription drug benefits, retiree major medical plans (pre-65 coverage and coverage for Medicare-eligible individuals), and health reimbursement arrangements (integrated and stand-alone).

To calculate the number of covered lives under each insured plan, providers can use several different methods, outlined below. For consistency, an issuer must use the same method of calculating the average number of lives covered under a policy for the duration of the year.

Actual Count Method

The actual count method calculates the actual number of covered lives on each day. Under this approach, a plan sponsor would add the total lives covered on each day of the plan year and then divide that number by the total number of days in the plan year. For example, to calculate the number of covered lives in a 12-month plan, the plan sponsor would count the covered lives on each day of the twelve months, and then divide by the number of days in the 12-month period (365).

Snapshot Method

Under the snapshot calculation method, the number of lives is calculated by adding the number of covered lives on a designated date during the first, second or third month of each quarter (or more dates, provided an equal number of dates are used in each quarter), and dividing the total by the number of dates on which the count was made. All dates used must be within the same plan year. The dates used must correspond to each of the dates used for the other quarters (or must be within three days of the corresponding dates). Both self-insured and fully insured plans may use the snapshot method to determine the fee total. Self-insured plans may also use the snapshot factor method, which allows plans to take the sum of (i) all employees with single coverage, plus (ii) number of employees with all other coverage multiplied by 2.35.

Form 5500

Lastly, under the Form 5500 method, the total number of covered lives is determined by adding the total of participants covered at the beginning and end of the plan year (as reported on the Form 5500 or Form 5500-SF). This method may only be used for self-insured plans, and only if the Form 5500 is filed no later than July 31 (the due date for paying the PCORI Fee).

The Reinsurance Fee

The Reinsurance Fee applies to plan years 2014 through 2016. All health insurance providers and third-party administrators for self-insured group health plans are required to pay a $63 per covered life contribution for the 2014 coverage year. The 2015 fee is estimated to be $27.80 per covered life, and the 2016 fee is estimated to be $25.20 per covered life.

The Reinsurance Fee applies to all "major medical products," including major medical plans (self-insured and insured), COBRA coverage, retiree major medical plans (pre-65 coverage only), and health reimbursement arrangements (stand-alone only).

Like the PCORI Fee, the Reinsurance Fee can be calculated using the actual count method, the snapshot method or the Form 5500 method. The primary difference is the Reinsurance Fee counts the covered lives during the first nine months of the calendar year (not the full coverage year period).

Plan providers and administrators must notify the U.S. Department of Health and Human Services (HHS) of the total covered lives in the first nine months of the plan year by November 15 of each year. HHS will then determine the amount of the fee and will bill the entity by December 15. Payment is then due within thirty days.

More Information

Plan providers can select to use different methods for calculating PCORI and Reinsurance Fees or use the same method. Sponsors of multiple self-insured plans, as well as sponsors of a mix of self-insured and insured plans, may aggregate plans and pay only once on each overlapping life when calculating the PCORI and Reinsurance Fees.