Reminder: The first of these fees may need to be remitted by a self-insured employer as early as July 31, 2013.

Three new fees/taxes imposed by the Affordable Care Act (“ACA” or “Health Reform”) will directly or indirectly impact an employer’s cost for providing health coverage to employees. One tax is effective for plan years ending after October 1, 2012 but increases in the following plan year, and the other two are effective for 2014 for the first time.  The fees are, together, so significant in amount that employers need to begin planning for 2014 health plan design and cost sharing with the fees in mind.

For example, if an employer offered a single policy in 2013 that had a cost of $400, and the insurer from which the policy is purchased decided to pass along its added cost for the new insurer fee (the third fee on the chart below), the three taxes together might add $75 (18.8%) to the total premium. This is an increase determined before any medical inflation is taken into account!

The three new taxes are:

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One of the new taxes assessed under the ACA is to be used to fund the Patient-Centered Outcomes Research Trust Fund, a private, nonprofit corporation that is supposed to support clinical effectiveness research, and therefore is commonly referred to as the “PCOR Fees.”

What types of plans are subject to the PCOR Fees?

The PCOR Fees apply to most health plans, whether self-insured or fully insured, including retiree-only plans and governmental plans.  Similar rules apply to the Transitional Reinsurance Fee imposed beginning in 2014.

What types of plans/arrangements are excluded from the PCOR Fees? 

  • Health reimbursement arrangements (HRAs) that are integrated with a self-funded group health plan
  • Certain health flexible spending arrangements (health FSAs)
  • Archer Medical Savings Accounts (Archer MSAs) and Health Savings Accounts (HSAs)
  • An employee assistance program, disease management program, or wellness program, if the program does not provide significant benefits in the nature of medical care or treatment
  • “Expatriate policies” designed and issued specifically to primarily cover employees who are working and residing outside of the United States
  • Stop loss and indemnity reinsurance policies
  • HIPAA excepted benefits (e.g., stand-alone dental or vision plans)

When do the PCOR Fees apply?

The annual fees will be imposed for 7 years, beginning with policy and plan years ending on or after October 1, 2012 and before October 1, 2019.  Insurers and plan sponsors will report and pay the fees once a year on Form 720, which will be due by July 31 of the calendar year immediately following the plan year.  So, for plan years ending between October 1, 2012 and December 31, 2012, the filing is due by July 31, 2013.  For plan years ending between January 1, 2013 and December 31, 2013, the filing is due by July 31, 2014. 

The Internal Revenue Service recently issued a revised IRS Form 720 (Quarterly Federal Excise Tax Return) to report and remit the PCOR Fees.

  • The IRS form can be found here.
  • The instructions to the IRS form can be found here.

How much are the PCOR Fees?

For policy and plan years ending on or after October 1, 2012 and before October 1, 2013, the fees are $1 multiplied by the average number of covered lives (including active and retired employees and their spouses and other dependents) under the plan for the plan year.  The fees increase to $2 for policy and plan years ending on or after October 1, 2013, and thereafter will be adjusted based on medical inflation.

How is the “average number of covered lives” determined?

If you have a fully-insured plan, your insurance carrier is responsible for determining the average number of covered lives, and for remitting the fees.  If you have a self-funded plan, you must determine the average number of covered lives for yourself, or you may engage a third-party administrator to do so.  There are three methods and a special transition rule for determining the average number of lives covered under a self-funded plan:

  1.  Actual Count Method: Count the number of the lives covered for each day of the plan year and divide by the number of days in the plan year
  2. Snapshot Method: Count the number of lives covered on the same designated day(s) during each month in each quarter (e.g., the 15th of each month) during the plan year, and divide by the number of days on which a count was made. For this purpose, the number of lives covered on a designated day is either:
  1. the actual number of lives covered that day or
  2. the number of participants with self-only coverage on that date, plus number of participants with other coverage (e.g., employee plus spouse, family coverage, etc.) on that date multiplied by 2.35 
  1. Form 5500 Method: This method may be used only if the Form 5500 is filed no later than the due date for the fee imposed for that plan year.  So, if your plan year is a calendar year, you may only use this method if you file the Form 5500 for that plan year by July 31.
  1. For a plan providing only self-only coverage, add the participant counts reported on the Form 5500 at the beginning and end of the plan year and divide by 2
  2. For a plan that provides self-only coverage and other coverage, add the participant counts reported on the Form 5500 at the beginning and end of the plan year
  1. Special Transition Rule: For a plan year starting before July 11, 2012 and ending on or after October 1, 2012, the plan sponsor may use any reasonable method.

There is a special counting rule for HRAs and health FSAs that are subject to the fees: the plan sponsor may count only the covered employees, regardless of how many other individuals are actually covered.  Plan sponsors may change the method they use each year.