On April 12, 2012, the Internal Revenue Service ("IRS") issued proposed regulations that provide guidance on the research fees that will be imposed by the Patient Protection and Affordable Care Act ("Act") on specified issuers of health insurance policies and plan sponsors of self-insured health plans. These research fees are scheduled to start with the first plan or policy year ending on or after October 1, 2012, and will affect the health plans of many employers. Although the regulations currently are in proposed form, health insurance issuers and plan sponsors may rely on the proposed regulations for guidance pending the issuance of final regulations.
Purpose of the Research Fee
The Act provides for the establishment of a private, non-profit corporation, the Patient-Centered Outcomes Research Institute ("Institute"), that will do research to evaluate and compare the health outcomes and the clinical effectiveness, risks and benefits of certain medical treatments, services, procedures, drugs and other techniques that will help treat, manage, diagnose, or prevent illness or injury. This research will be used by the Institute to help patients, clinicians, purchasers and policymakers make informed health decisions. The Act provides for the establishment of a Patient-Centered Outcomes Research Trust Fund ("Trust Fund") that will be the funding source for the Institute. The Trust Fund will be financed, in part, by the research fees that will be paid by specified issuers of health insurance policies and sponsors of self-insured health plans.
Amount of the Research Fee
The research fee will be imposed on specified issuers of health insurance policies and plan sponsors of self-insured health plans for each policy or plan year ending on or after October 1, 2012 and before October 1, 2019, and will be:
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one dollar multiplied by the average number of lives covered under the policy or plan, in the case of policy or plan years ending before October 1, 2013; and
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two dollars multiplied by the average number of lives covered under the policy or plan, for policy or plan years ending on or after October 1, 2013 and before October 1, 2019.
For policy or plan years ending on or after October 1, 2014, the research fee will be increased based on increases in the projected per capita amount of "National Health Expenditures."
Covered lives generally includes covered employees, spouses, dependents and certain beneficiaries, subject to specified exceptions for health reimbursement arrangements ("HRAs") and health flexible spending accounts ("Health FSAs"). If an individual is covered by two self-insured health plans sponsored by an employer that have the same plan year (e.g, a self-insured medical plan and a self-insured prescription drug plan that have the same plan year), only one research fee is required for that individual. The research fee does not have to be paid for an individual residing outside of the United States.
Payment of the Research Fee
Issuers and plan sponsors that are required to pay the research fee will report and pay it once a year, and in no event later than July 31 of each applicable year. The first payment deadline for the research fee is July 31, 2013. IRS Form 720, "Quarterly Federal Excise Tax Return," should be used to pay the research fee. There are special rules for determining who will pay the research fee when a plan covers more than one employer.
Health Coverages Subject to the Research Fee
Insured and self-insured health coverages generally will be subject to the research fee, except to the extent they are an "excepted benefit" under the proposed regulations or they qualify for one of the other exemptions permitted by the proposed regulations. Among the types of health coverages that generally will be subject to the research fee will be insured or self-insured medical and prescription drug plans, certain HRAs, dental or vision plans that do not qualify as "excepted benefits," a small number of Health FSAs, certain retiree-only plans, and certain governmental plans. "Excepted benefits" that will be exempt from the research fee include, but are not limited to:
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limited scope dental or vision benefits that are offered separately;
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benefits for long-term care, nursing home care, home health care, or community-based care that is offered separately;
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coverage only for a specified disease or illness, if offered as independent, non-coordinated benefits;
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Medicare supplemental health insurance, if offered as a separate insurance policy;
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on-site medical clinics;
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coverage only for accident and/or disability income insurance;
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workers' compensation; and
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automobile medical payment insurance.
Among the other more important regulatory exemptions from the research fee are exemptions for:
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health savings accounts ("HSAs");
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most, but not all, Health FSAs;
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an employee assistance program ("EAP"), disease management program, or wellness program, if the program does not provide significant benefits in the nature of medical care or treatment;
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stop-loss insurance policies issued with respect to a self-insured health plan;
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any group policy designed and issued specifically to cover employees who primarily are working and residing outside of the United States; and
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certain governmental programs (such as Medicare and Medicaid).
Determining the Number of Covered Lives
The research fee is based on the average number of lives covered under the applicable insurance policy or plan, and the proposed regulations provide several options for determining that number.
The proposed regulations also have several other requirements regarding the research fee that may apply depending upon the facts and circumstances of each policy or plan. The period for assessing the research fee will start later this year, and employers that have health coverages that will be subject to the fee should coordinate with any applicable insurer or administrator to make sure the fee is timely and correctly paid.