May 22, 2012
The Affordable Care Act (ACA) created the Patient-Centered Outcomes Research Institute (Institute) to help patients, clinicians, payers and the public make informed health decisions by advancing comparative effectiveness research. The Institute’s research is to be funded, in part, by fees paid by health insurance issuers and sponsors of self-insured health plans.
On April 17, 2012, the Internal Revenue Service (IRS) issued proposed regulations on the research fees. The proposed regulations address many important details regarding which health insurance issuers and plan sponsors are subject to the fees and how the fees are calculated and paid. Comments on the proposed regulations are due by July 16, 2012.
Although the proposed regulations are not final, issuers and plan sponsors may rely on the guidance provided in the proposed regulations pending the IRS’s issuance of final regulations. If future IRS guidance on the research fees is more restrictive than the proposed regulations, the future guidance will not be applied retroactively.
A copy of the proposed regulations is available at: www.gpo.gov/fdsys/pkg/FR-2012-04-17/pdf/2012-9173.pdf.
This HCR Pathways provides an overview of the research fees to be paid by health insurance issuers and sponsors of self-insured plans under ACA, including the guidance provided in the proposed regulations.
If offering fully-insured medical plan/s - the issuer of the health insurance policy (i.e., your health insurance carrier) is required to pay the research fees. However, issuers may shift the fee cost to you through a modest premium increase. Your Burnham support staff will research this with your medical insurance carrier and provide details as they become available.
If offering self-insured medical plans/s - the research fees are paid by the plan sponsor (i.e., your organization). Your Burnham support staff will work with you to determine the fees and timing for your organization. We encourage you to read the Addendum section of this ACA Pathways for more details on this new requirement.
The research fees apply for plan years ending on or after Oct. 1, 2012 (Generally for plan years that started on November 1, 2011 (which ends on October 31, 2012)). The research fees do not apply for plan years ending on or after Oct. 1, 2019. For calendar year plans, the research fees will be effective for the 2012 through 2018 plan years.
For plan years ending before Oct. 1, 2013 (that is, 2012 for calendar year plans), the research fee is $1 multiplied by the average number of lives covered under the plan. For plan years ending on or after Oct. 1, 2013 and before Oct. 1, 2014, the fee is $2 multiplied by the average number of lives covered under the plan.
For plan years ending on or after Oct. 1, 2014, the research fee amount will rise based on increases in the projected per capita amount of National Health Expenditures.
Health Insurance Issuers and Sponsors of Self-Insured Plans
The research fees apply to “specified health insurance policies” and “applicable self-insured health plans.” ACA broadly defines these terms as follows:
The research fees do not apply if substantially all of the coverage under a plan is for excepted benefits, as defined under HIPAA. Excepted benefits include, for example, stand-alone dental and vision plans, accident-only coverage, disability income coverage, liability insurance, workers’ compensation coverage, or coverage for on-site medical clinics.
A health flexible spending account (FSA) qualifies as an excepted benefit if: (1) other group health plan coverage, not limited to excepted benefits, is made available to the eligible class of participants; and (2) the maximum benefit payable under the FSA to any eligible participant does not exceed two times the participant’s salary reduction election (or, if greater, $500 plus the amount of the salary reduction election).
Retiree Health Plans
Although stand-alone retiree health plans are generally exempt from many of ACA’s requirements, sponsors and issuers of these plans are subject to the research fees, unless the plans qualify as an excepted benefit under HIPAA.
Health HRAs and FSAs
Under the proposed regulations, HRAs and health FSAs are not completely excluded from the obligation to pay research fees. However, the proposed regulations provide that multiple, self-insured arrangements established and maintained by the same plan sponsor with the same plan year are subject to single fee.
As a result, an HRA is not subject to a separate research fee if it is integrated with another self-insured plan providing major medical coverage, provided the HRA and the plan are established and maintained by the same plan sponsor. However, if an HRA is integrated with an insured group health plan, the plan sponsor of the HRA and the issuer of the insured plan will both be subject to the research fees, even though the HRA and insured group health plan are maintained by the same plan sponsor. The same analysis applies to health FSAs that do not qualify as excepted benefits.
Employee Assistance, Disease Management and Wellness Programs
The proposed regulations provide that employee assistance programs (EAPs), disease management programs and wellness programs are not subject to the research fees if the programs do not provide significant benefits in the nature of medical care or treatment.
Insured Health Plans
Health insurance issuers have the following options under the proposed regulations for determining the average number of covered lives:
Self-Insured Health Plans
Sponsors of self-insured plans may determine the average number of covered lives by using the actual count method or snapshot method. Alternatively, plan sponsors may use the Form 5500 method, which involves a formula using the number of participants reported on the Form 5500 for the plan year.
For HRAs and health FSAs that are required to be reported separately (for example, because they are integrated with an insured group health plan and do not qualify as excepted benefits), the regulations propose to simplify the determination of average number of covered lives by allowing plan sponsors to assume one covered life for each employee with an HRA or health FSA.
Plan sponsors and issuers may only use one method for determining the average number of covered lives for each plan year. In addition, issuers must use the same method of counting lives for all policies reported on a single return.
However, issuers using the actual count or snapshot method and plan sponsors do not have to use the same method from year to year. However, under the proposed regulations, issuers using a form method (either the Exhibit method or the state form method), must use the method for all policies and for all years that the fee is applicable.
For More Information
For more information about this ACA Pathways or about any other health care reform-related provisions, please contact your Burnham Benefits consultant or Burnham Benefits at:
This ACA Pathways is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.
The information contained in this ACA Pathways includes emerging health care news from a limited perspective and does not encompass all views. The information was selected from a wide range of sources selected on the basis of their potential impact on employers and/or their employee benefit plans. For more information, please contact Burnham Benefits.