This is the second blog post discussing the recently proposed regulations (on which taxpayers can rely) on the Patient-Centered Outcomes Research Trust Fund fee. The first post is here. This new fee, required to fund the Patient-Centered Outcomes Research Institute, is imposed under the Patient Protection and Affordable Care Act (PPACA) on most health insurance policies and most employer self-funded health plans. This blog post focuses on the employer self-funded plans subject to the fee.
Generally speaking, all self-funded employer plans, regardless of size, are subject to the fee. In an important exception, however, those plans that are exempt from the HIPAA portability rules are also exempt from this fee. This includes stand alone limited scope dental and vision plans, as well as health flexible spending accounts (FSAs) that meet the regulatory exception. Under that exception, the class of employees eligible for the FSA must also be eligible for health plan coverage (other than excepted benefits), and the benefits available under the FSA cannot exceed the greater of twice the employee’s salary reduction amount or the employee’s salary reduction amount plus $500. On site medical clinics are also exempt from HIPAA portability requirements and so are also exempt from the fee. The proposed regulations also exempt employee assistance programs, disease management programs and other wellness programs that do not provide substantial health benefits. Because they are not actually plans, stop loss policies or other reinsurance contracts that do not directly pay benefits to participants are not subject to the fee.
There is a special rule for health reimbursement arrangements (HRAs). If the health reimbursement arrangement is integrated with a self-funded health plan, then the two plans together are treated as a single plan and the fee paid only once with respect to those who participate in the plan. However, if the HRA is self-funded and the integrated major medical plan is fully insured, then the employer must pay the fee on the self-funded HRA as well as presumably having to pay the fee on the insured portion of the plan through increased premiums or a pass through of the fee by the insurance company on which it is imposed. This results in a double payment that seems unfortunate for employers. The IRS has asked for comments on the proposed regulations and perhaps will change its position in the final regulations if employers complain.
Another non-exception of note is the fact that even retiree only plans are required to pay this fee. The normal exception under PPACA for plans that cover no active employees is not applicable to this fee. Therefore, plans that cover retirees will also be subject to this fee whether fully insured or self-funded.
Certain government plans are not covered, including Medicare, Medicaid, Children’s Health Insurance Progam (CHIP), coverage for military members and veterans, and the Indian Health Service. However, state and local government plans that cover state and local employees and plans of Indian tribes covering their employees are covered by the fee.
Plans must pay the fee only with respect to individuals residing in the United States, which is defined to include U.S. possessions such as Puerto Rico and American Samoa. An employer is permitted to use the address of the primary enrollee to categorize a participant, spouse and dependents as U.S. residents. In addition, plans that are established primarily to cover employees outside the U.S. (expatriate plans) are not subject to the fee.
Later blog posts will address how the average number of participants is determined and how the fee is paid.