A number of provisions of the Affordable Care Act establish programs intended to improve the quality of health care. Employers and insurers are required to pay fees to fund one such program: the Patient-Centered Outcomes Research Institute (Institute). The Institute has several responsibilities but its general purpose is to assess the value of health care options, and help patients and providers communicate and make informed health care decisions. For plan years ending on or after October 1, 2012, plan sponsors are to pay a fee of $2.00 ($1.00 for the first plan year) for each individual covered under a self-insured accident or health coverage plan. Insurers are to pay the fee for an insured plan. The fee ends in 2019.
Recently, the Internal Revenue Service issued proposed regulations providing guidance on the calculation and payment of these fees. Here are important points for employers:
- The employer is to pay the fee if it is the “sponsor” of the self-insured plan. Generally, an employer will be the sponsor of a single-employer plan. Where there are multiple employers maintaining a plan and no employer is designated as the plan sponsor, each employer is treated as a separate sponsor of a plan and must report and pay for the fee for its covered individuals in a separate return.
- The fee applies to plans providing accident or health coverage to employees or former employees. This includes retiree-only group health plans. There are exceptions for accident and disability benefits, excepted benefits, such as limited-scope vision or dental benefits, and most health flexible spending arrangements, long-term care benefits, employee assistance and wellness programs that do not provide significant benefits for medical care or treatment, and on-site clinics.
- Sponsors of multiple self-funded plans with the same plan year are only required to pay one fee for all such plans. For example, if an employer sponsors a group health plan and a health reimbursement arrangement (HRA) with the same plan year, the fee is calculated on the basis of one plan, not two plans. Note, however, that if the group health plan is insured, the insurer will be required to pay the fee with respect to the group health plan and the employer also will be required to pay the fee for the HRA.
- The proposed regulations describe three options for determining the average number of covered individuals for self-insured plans. The first option, the “actual count method,” requires the sponsor to count the total lives covered on each day of the plan year and divide the total by the total number of days in the year. The second option, the “snapshot dates method,” generally requires the sponsor to determine the number of lives covered on at least one day for each quarter and divide the total by the number of dates on which a count is made. The third and more likely to be used method is the “Form 5500 method.” If the plan covers participants and dependents, this method requires sponsors to report the sum of the number of participants reported at the beginning of the plan year and the number reported at the end of the plan year. If the plan does not cover dependents, the sum is divided by two.
- The first plan year for which the fee applies is the first year ending on or after October 1, 2012 (i.e., December 31, 2012 for calendar year plans). The fee is to be submitted with Form 720, Quarterly Federal Excise Tax Return, by July 31 of the calendar year following the applicable plan year.
Of course, this fee and other Affordable Care Act requirements may be affected by the decision later this year of the United States Supreme Court regarding the constitutionality of the Affordable Care Act. Calfee is planning a seminar that will be held shortly after the United States Supreme Court renders its decision in which we will review the practical applications of the decision for plan sponsors.