The Affordable Care Act imposes fees on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans. The fees are generally referred to as the comparative effectiveness research fees. The IRS recently issued proposed regulations regarding the fee. This ALERT will focus on employer sponsored group health plans.
Bottom Line: The insurance company is responsible for the fee in the case of an insured group health plan. The Plan sponsor is responsible for the fee in the case of a self-insured group health plan. Self-insured plans include retiree only plans, HRAs and certain health care FSAs. The fee is effective for each policy/plan year ending on or after October 1, 2012 and before October 1, 2019. Form 720 – Quarterly Federal Excise Tax Return will be used to pay the fee but it is to be filed annually and is due by July 31 of the calendar year immediately following the last day of the policy/plan year. The first filing for most plans will be July 31, 2013.
The fee
The fee is $1 times average number of lives covered under the policy/plan for policy/plan years ending before October 1, 2013.
The fee is $2 times average number of lives covered under the policy/plan for policy/plan years ending before October 1, 2019.
For policy/plan years ending on or after October 1, 2014 the fee is increased based on the increases in the projected per capita amount of National Health Expenditures.
DOL is considering permissible funding sources for these fee payments by plan sponsors that are subject to ERISA’s fiduciary provisions.
Plans subject to the fee
The fee is imposed on the issuer of a specified health insurance policy in the case of an insured plan and on the plan sponsor in the case of an applicable self-insured health plan.
A specified health insurance policy is any accident or health insurance policy issued with respect to individuals residing in the US.
An applicable self-insured health plan is a plan maintained by a plan sponsor to provide accident and health coverage which is provided other than through an insurance policy.
Plans not subject to the fee:
- An EAP, disease management program or wellness program that does not provide significant benefits in the nature of medical care or treatment.
- An HRA if it is integrated with another applicable self-insured plan that provides major medical coverage provided the self-insured plan and the HRA are maintained by the same plan sponsor.
- Excepted benefits e.g., stand alone vision and dental, certain health care FSAs
- Stop loss coverage.
HRAs and FSAs
If plan is insured and is integrated with an HRA, the insurance company is responsible for the fee for the insured plan and the plan sponsor is responsible for the fee for the HRA.
A health care FSA that doesn’t satisfy the excepted benefit rules is considered a self-insured plan subject to the fee and is treated as an integrated HRA.
Multiple self-insured arrangements
Two or more self-insured arrangements maintained by the same plan sponsor that have the same plan year may be treated as a single self-insured arrangement.
For example, a self-insured medical plan with a separate self-insured prescription drug plan may be considered as one self-insured arrangement if both plans have the same plan year.
Plan Sponsor
The proposed regulations provide a fairly typical explanation of who is a plan sponsor. However, it is worth noting that the proposed regulation state that if the plan sponsor is not as described in the regulations (employer in the case of a single employer, joint board of trustee in the case of a multiemployer plan, committee in the case of MEWA, rural electric cooperative or association, trustee in the case of a VEBA) then the person identified in the plan document is the plan sponsor if such person accepts the designation and is one of the persons maintaining the plan. If no one is identified as the plan sponsor then each organization that maintains the plan is required to file a separate Form 720. An example in the proposed regulations explains this provision and if you are a member of a controlled group it is definitely worth noting.
Determining average number of lives covered
The proposed regulations provide plan sponsors three methods to determine the average number of covered lives:
- The actual count method
- The snapshot count method and the snapshot factor method
- The Form 5500 method
The actual count method calculates the sum of lives covered for each day of the plan year and divides by number of days in the plan year.
The snapshot method adds the total number of lives covered on one date in each quarter or an equal number of dates in each quarter and divides by the total number of dates on which a count was made.
For purposes of the snapshot method the number of lives covered on a date may be determined as equal to either the sum of the actual number of lives covered on the dates (the snapshot count method) or the sum of (1) the number of participants with self-only coverage, plus (2) the product of the number of participants with coverage other than self-only on the date times 2.35 (the snapshot factor method)
The Form 5500 method is based on a formula that includes the number of participants reported on the Form 5500 for the applicable self-insured health plan for the plan year.
For a plan that provides self-only coverage, the average number of lives is the sum of the total participants at the beginning of the plan year and the end of the plan year divided by two.
For a plan that provides coverage that is not limited to self-only coverage, the average number of lives is the sum of the participants at the beginning of the plan year and at the end of the plan year.
Plan sponsors must use the same method for the entire plan year but can change the method from plan year to plan year.
There is a special rule for plan years that end on or after October 1, 2012 and began before July 11, 2012 which allows any reasonable method to determine the average number of lives covered under the plan.
There are examples in the regulation which illustrate how to determine the average number of covered lives.
Paying the fee
Form 720 – Quarterly Federal Excise Tax Return is used to pay fees but it is filed annually and is due by July 31 of the calendar year immediately following the last day of the policy/plan year.
The first filing for most plans will be July 31, 2013.
What should Plan sponsors do now?
- Identify your plans that are subject to the fee.
- Determine which counting method you will use.
- Add the fee to your budgeting process if you haven’t already done so.
- If you are a member of a controlled group, check the plan document to ensure that one plan sponsor is designated or else each member of the controlled group will be subject to the fee.
- Add another item to your compliance calendar.
Note: all links are active as of the date of issuance of this ErisaALERT.
Disclaimer: This material is for the sole purpose of providing general information and does not under any circumstances constitute legal advice and should not be used as a substitute for legal advice. You should seek the advice of counsel when applying the requirements to your plan. For more information on this ErisaALERT contact us by phone at 610-524-5351 and ask for Mary Andersen or 973-994-7539 and ask for Theresa Borzelli.
