On December 5, 2012, the Internal Revenue Service (“IRS”) issued final regulations implementing the annual fee imposed by the Patient Protection and Affordable Care Act of 2010 (“PPACA”) to fund the Patient—Centered Outcomes Research Trust Fund (the “PCORI” fee). In our September 2012 issue, we discussed the proposed regulations on this topic, explained which plans the PCORI fee applies to, how it should be calculated, and when the PCORI fee is effective. The final regulations retain most of the rules set forth in the proposed regulations. However, the IRS makes several clarifications and changes to take into account comments received in response to the proposed regulations.
Clarifications to the Proposed Regulations
The final regulations clarify the following:
- Plans and policies that provide accident and health coverage to retirees, including retiree—only plans, are included in the definitions of “applicable self—insured health plan” and “specified health insurance policy.”
- Participants receiving continuation coverage (such as COBRA) must be taken into account when determining the amount of the PCORI fee.
- The definition of “applicable self—insured health plan” does not include a self—insured expatriate health plan if the plan was designed specifically to cover primarily employees who are working and residing outside of the United States.
- The definition of an “individual residing in the United States” means an individual who has a place of abode, based on the most recent address on file with the plan or the policy issuer, in the United States. The spouse, dependents, or other beneficiaries covered under the same plan or policy as the individual are considered has having the same place of abode and are also treated as residing in the United States.
The final regulations also provide additional examples illustrating how the PCORI fee applies to Health Reimbursement Arrangements (“HRAs”), and illustrating the plan years that are subject to the PCORI fee.
Changes from the Proposed Regulations
Exclusion for EAPs, Disease Management Programs and Wellness Programs
The proposed regulations excluded Employee Assistance Programs (“EAPs”), disease management programs and wellness programs that do not provide significant benefits in the nature of medical care or treatment from the definition of “applicable self—insured health plan.” Therefore these EAPs, disease management programs or wellness programs that are self—insured are not subject to the PCORI fee. However, the proposed regulations did not include a similar exception for EAPs, disease management programs and wellness programs from the definition of “specified health insurance policy.” In response to comments, the IRS has modified the final regulations to include such an exception for insured EAPs, disease management programs and wellness programs that do not provide significant benefits in the nature of medical care or treatment.
Counting Participants Covered Both by an Applicable Self—Insured Health Plan and a Specified Health Insurance Policy
Commenters requested that participants covered under both an “applicable self—insured health plan” and a “specified health insurance policy” with the same plan sponsor only be counted once for purposes of determining the amount of the PCORI fee. The IRS did not adopt this request in the final regulations. However, the final regulations do permit an “applicable self—insured health plan” that provides coverage through fully insured options as well as self—insured options to disregard those participants only covered under the fully insured option when determining the amount of the PCORI fee for the “applicable self—insured health plan.”
Determining the Average Number of Lives for Self—Insured Health Plans
The proposed regulations specified three methods for determining the average number of lives for self—insured health plans. The final regulations maintain these three methods, but slightly modify the “snapshot method,” which takes a “snapshot” of the number of covered lives on a certain day or days in each quarter and then divides that number by the number of dates on which the count was made. The proposed regulations required that the day on which the number of covered lives was determined must be the same date each quarter (e.g., the first day of the quarter or the last day of the quarter). The final regulations change this requirement, allowing for the date on which the “snapshot” is taken to be within a three day range each quarter. This provides more flexibility for plan sponsors using this method to select the day each quarter to take the “snapshot” of covered lives. Additionally, the final regulations provide that the 30th and 31st of a month are treated as the last day of the month for determining the corresponding date in the next quarter. For example, if the date selected is either March 30 or 31st for the first quarter, then the corresponding date in the second quarter would be June 30th.
Form 720 Reporting and Corrections
One thing that the IRS does not specifically address in the final regulations is how to correct an error in calculating the PCORI fee. The PCORI fee is payable on an annual basis by filing IRS Form 720, “Quarterly Federal Excise Tax Return.” The IRS has said that they will amend Form 720 to accommodate the PCORI fee; however, at the time of publication Form 720 has not yet been amended. The preamble to the final regulations notes that because the PCORI fee is submitted by filing Form 720, the correction process is that associated with correcting an incorrect Form 720.
Next Steps for Plan Sponsors
The IRS has not extended the compliance deadline for the PCORI fee, which is July 31 of the calendar year immediately following the last day of the policy or plan year for which the PCORI fee applies (i.e., July 31, 2013 for a 2012 calendar plan year). Now that the IRS has finalized the PCORI fee guidance, plan sponsors should:
- Make sure that they have identified all plans that are subject to the PCORI fee; and
- With respect to any self—insured plans, determine which of the three methods for calculating the average number of lives will be the most cost effective and administratively feasible for each plan that is subject to the PCORI fee.
If you have any questions regarding the PCORI fees please contact the Trucker Huss attorney with whom you normally work or the author of this article.