The Internal Revenue Service (IRS) has issued a proposed rule addressing the fees imposed by the Affordable Care Act on issuers of certain health insurance policies and plan sponsors of certain self-insured health plans to fund comparative effectiveness research. These fees are designed to support the Patient-Centered Outcomes Research Trust Fund (“Trust Fund”). The Affordable Care Act includes provisions establishing the Patient-Centered Outcomes Research Institute (the "Institute"), a private, nonprofit corporation whose purpose is to “assist, through research, patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing the quality and relevance of evidence-based medicine through the synthesis and dissemination of comparative clinical effectiveness research findings.” The Institute is to be paid for by the Trust Fund, which, in turn, will be partly financed by fees paid by issuers of specified health insurance policies and sponsors of applicable self-insured health plans.

The Affordable Care Act imposes a fee on an issuer of a specified health insurance policy for each policy year ending on or after October 1, 2012, and before October 1, 2019 to support the Trust Fund. The fee is two dollars (one dollar in the case of policy years ending before October 1, 2013) multiplied by the average number of lives covered under the policy. For policy years ending on or after October 1, 2014, the fee is increased based on increases in the projected per capita amount of National Health Expenditures. With respect to applicable self-insured health plans, the fee will be paid by the plan sponsor. In the case of (1) a plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, (2) a multiple employer welfare arrangement, or (3) a voluntary employees’ beneficiary association described in section 501(c)(9), the plan sponsor is the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan.

The proposed rule incorporates comments received in response to IRS Notice 2011-35 released in June 2011, which discussed how these fees should be calculated and paid, as well as possible rules and safe harbors. The proposed rule considers in detail various comments submitted in response to this Notice. Generally, the proposal lays out which health insurance policies are considered “specified” health insurance policies subject to the fee; which self-insured health plans and plan sponsors are subject to the fee; whether and to what extent health FSAs and HRAs are excluded from the definition of an applicable self-insured health plan; how employee assistance programs, disease management programs, and wellness programs are to be treated; how the applicable fees are to be calculated, and applicable filing requirements.

With respect to fee calculation, the fee imposed on an issuer of a specified health insurance policy and that imposed on a plan sponsor of an applicable self-insured health plan is to be based on the average number of lives covered under the policy or plan. The proposed regulations direct an issuer to apply a single method in determining the average number of lives covered under the policy or plan for the year. The proposed rule contains various examples as to how this calculation would work under differing circumstances.

The term “specified health insurance policy” includes only accident and health insurance policies that are issued to an individual residing in the United States. The proposed regulations clarify that for purposes of this fee, “an individual residing in the United States” means an individual who has a place of abode in the United States.

These proposed regulations provide that an applicable self-insured health plan “is a plan that is established or maintained by a plan sponsor for the benefit of employees, former employees, members, former members, or other eligible individuals to provide accident and health coverage . . . any portion of which is provided other than through an insurance policy and that meets certain other conditions.” The proposed rule states that an applicable self-insured health plan does not include an exempt governmental program but does include retiree-only plans.

With respect to FSAs and HRAs, the proposed regulations do not exclude all such plans from the definition of an applicable self-insured health plan, but do provide that multiple self-insured arrangements established and maintained by the same plan sponsor and with the same plan year are subject to a single fee. Accordingly, an HRA is not subject to a separate fee under section 4376 if the HRA is integrated with another applicable self-insured health plan that provides major medical coverage, provided that the HRA and the other plan are established or maintained by the same plan sponsor. A specified health insurance policy does not include any insurance if substantially all of its coverage is of excepted benefits. The proposed regulations provide that a health FSA that satisfies the requirements of an excepted benefit is excluded from the definition of an “applicable self-insured health plan” and therefore is not subject to the fee. The proposed regulations does contain a special rule permitting the plan sponsor to assume one covered life for each employee with an HRA and for each employee with a health FSA that is not an excepted benefit.

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 would not be considered an “applicable” self-insured plan, and, therefore, would not be subject to the fee.

The IRS will hold a public hearing on these regulations on Wednesday, August 8, 2012 at 10:00 a.m. in the IRS Auditorium at the Internal Revenue Building, 1111 Constitution Avenue, N.W., Washington, DC. Requests to speak and submission of outlines of topics to be discussed at the public hearing must be received by July 30, 2012. Speakers will be allotted 10 minute timeslots in which to comment. Submissions may be made electronically via the federal eRulemaking portal using code: IRS REG-136008-11 or sent to CC:PA:LPD:PR (REG-136008-11), Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington DC 20044. Written requests and submissions may also be hand-delivered to the Courier’s Desk Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, DC.

Comments on the information collection requirements contained in the proposed regulations must be received by July 17, 2012. Such comments are to be sent to: Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224.

Photo credit: Andriy Solovyov