The Affordable Care Act (ACA) created a fund for a new nonprofit corporation to assist in clinical effectiveness research. To aid in the financial support for this endeavor, certain health insurance carriers and health plan sponsors will pay fees based on the average number of lives covered by welfare benefits plans. These fees, referred to as either Patient-Centered Outcome Research Institute (PCORI) or Clinical Effectiveness Research (CER) fees, are to be filed using IRS Form 720.Subsequently, the IRS issued a revised Form 720 Monday June 3, 2013 to accommodate the newly-implemented PCORI fee. The fee goes into effect for fully-insured and self-insured plan years ending on or after October 1, 2012. For plans that began January 1, 2012 and ended December 31, 2012, the reporting for the 2012 plan year is due by July 31, 2013. For plan years ending in 2013, the fee is due July 31, 2014.
The fees are $1 per average covered life for the initial plan year and $2 per average covered life for the following year. Indexed each year thereafter, the fee amount will be determined by the value of national health expenditures. The fee phases out and will not apply to plan years ending after September 30, 2019.
As a reminder, fees are required for all group health plans including HRAs and some health FSAs unless they consist solely of employee contributions or excepted benefits such as plans that only cover vision or dental expenses. For information on which plans are required to pay and methods for calculating the fee, please refer to our previous article.
If your present stand-alone HRA will have unused amounts credited prior to January 1, 2014, those dollars may be used after December 31, 2013, to reimburse medical expenses through your stand-alone HRA, with certain restrictions. You are not permitted, however, to increase the amount you are crediting to an HRA for 2013 above what was in effect on January 1, 2013.
Health FSAs are only required to pay the fee if 1) the employer does not offer another group health plan and 2) there are employer contributions to the plan with maximum reimbursement greater than two times an employee's salary reduction election (or if greater, employee's salary reduction election plus $500). In other words, health FSAs that do not include employer contributions in addition to employee salary reductions would not be required to pay CER fees. Health FSAs that do include employer contributions MAY be required depending on the amount of employer funding and if the employer contributions exceed employees' salary reduction amounts by more than $500.
HRAs exempt from other regulations would be subject to the CER fee. For instance, an HRA that only covered retirees would be subject to this fee, but those covering dental or vision expenses only would not be, nor would EAPs, disease management programs and wellness programs be required to pay CER fees.
The revised Form and instructions for completion are available here.
The information contained in this memo is not intended to be legal, accounting or other professional advice. We assume no liability whatsoever with its use, and these comments are not directed to specific situations.