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Alert - Health Care Reform Bill - IRS Issues Final Regulations for Comparative Effectiveness Research Fees

Alert - Health Care Reform Bill - IRS Issues Final Regulations for Comparative Effectiveness Research Fees






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    Alert - Health Care Reform Bill - IRS Issues Final Regulations for Comparative Effectiveness Research Fees Alert - Health Care Reform Bill - IRS Issues Final Regulations for Comparative Effectiveness Research Fees Document Transcript

    • HUMAN CAPITAL PRACTICEALERT:HEALTH CARE REFORM BILLFebruary 2013 www.willis.comIRS ISSUES FINAL REGULATIONSFOR COMPARATIVE EFFECTIVENESSRESEARCH FEESFinal regulations on the fee to fund the Patient Centered Outcomes Research Institute (PCORI),known as the Comparative Effectiveness Research (CER) fee, were issued by the Department ofthe Treasury on December 6, 2012.BACKGROUNDThe Patient Protection and Affordable Care Act (PPACA) includes a provision that promotesresearch to evaluate and compare health outcomes and the clinical effectiveness, risks andbenefits of medical treatments, services, procedures, drugs and other strategies that treat,manage, diagnose or prevent illness or injury. The PCORI was created under PPACA to promotethis research. The funding source for the Institute is a trust financed by fees paid by healthinsurers and sponsors of self-insured health plans. The final regulations can be found here.The fee began to apply to plan years ending on or after October 1, 2012 and ceases to apply to planyears ending on or after October 1, 2019. Thus, calendar year plans were subject to the fee for2012. Furthermore, for calendar year plans, the fee will not be applicable after the 2018 year,since the plan for 2019 will end after October 1, 2019.Generally, the fee is tiered, starting at $1, multiplied by the average number of lives coveredunder the plan for those plans ending before October 1, 2013. For plan years and policy years(fully insured groups) ending on or after October 1, 2013, the fee is $2 multiplied by the averagenumber of lives covered under the plan. Plan or policy years ending on or after October 1, 2014may see the $2 fee increased for inflation.Responsibility for calculating and paying the fee lies with the health insurer for a fully insuredplan and with the plan sponsor for a self-insured plan. The remainder of this Alert will addressthe fee only as it pertains to self-insured plans.AFFECTED PLANS AND EXCEPTIONSPlan sponsors of applicable self-insured health plans are subject to the fee. An applicable self-insured health plan is one that provides accident and health coverage other than through aninsurance policy and is established for the benefit of employees, former employees, members,former members or other eligible individuals. Special attention should be given to the fact thatfor purposes of the CER fee, plans for “former employees” are included. Thus, plans that providefor retiree coverage are not excepted from this PPACA provision, as they have been exceptedfrom other PPACA health insurance market reforms. Self-insured governmental plans are also“applicable self-insured health plans” subject to the fee as well as multiple employer welfare
    • arrangements (MEWAs), multiemployer plans, rural electric cooperatives and voluntaryemployees’ beneficiary associations (VEBAs).However, the regulations outline which plans or benefits are not subject to the fee: Plans designed and issued specifically to cover primarily employees not working and residing in the United States (expatriate plans). For residential clarification, the regulations provide that if the address on file for the primary insured is outside of the United States, then the insurer or plan sponsor may treat the primary insured, spouse, dependents or other beneficiaries as not residing in the United States. Health flexible spending accounts (FSA) that meet the definition of an excepted benefit. A health FSA is an excepted benefit if (i) the maximum benefit that is available to a participant in any given year is not more than two times his or her salary reduction (or, if greater, his or her salary reduction plus $500) and (ii) major medical coverage is made available that same year to employees participating in the health FSA. Employee assistance programs, disease management or wellness programs as long as the program does not provide for significant medical care or treatment. A plan that provides benefits substantially all of which are excepted benefits, including limited-scope dental and vision plans, accident-only or disability-only plans, and on-site clinics. A dental or vision plan will be deemed excepted if participants may decline coverage, and participants must pay an additional contribution to elect the coverage. Health savings accounts. Medicare, Medicaid, CHIP programs and federal care for the armed forces, veterans, and Indian tribes are exempt from the fee. Stop loss coverage.PLAN SPONSOR – PLAN DOCUMENTBecause the plan sponsor is responsible for payment of the fee, it is important to understandthe number of plans which an employer sponsors. In the instance of a plan maintained by asingle employer, the employer is the plan sponsor. If an employer participates in a planmaintained by a single employee organization, the employee organization is the plansponsor.Generally, when a self-insured plan covers employees of more than one related employer,they are deemed to be under common control of one employer and one plan sponsor.However, the regulations for the CER fee do not contain rules that would treat relatedentities as a single employer. Thus, in this situation, the regulations provide that the plansponsor (and entity responsible for the fee) will be the person identified in the terms of theplan document that governs the plan. In addition to being named in the plan document asthe plan sponsor, the entity must also consent to the designation by no later than the duedate for paying the fee.If a plan sponsor is not designated in the terms of the plan document, then the plan sponsoris each employer who has employees covered under the plan. Thus, each employer would beresponsible for paying any applicable fee and any filing requirement. This provision again 2 Willis North America • 02/13
    • emphasizes the importance of an employer ensuring its plan is paying and reporting the CER fee for theestablished and governed by a plan document. fully insured HDHP, while the plan sponsor is responsible for paying andMULTIPLE SELF-INSURED ARRANGEMENTS reporting the fee for the HRA.OF THE SAME PLAN SPONSOR FEE HEADCOUNTIt is not out of the ordinary for an employer to sponsor more than one The fee imposed on a plan sponsor of angroup health plan. For example, an employer may have one applicable health plan is based on the averagearrangement for medical benefits and another for prescription drugs. number of lives (employees and dependents)Likewise, an employer may have a high deductible health plan covered under the plan. The proposed(HDHP) and a health reimbursement arrangement (HRA). As it regulations provide plan sponsors a choice ofrelates to the CER fee the issue is whether all arrangements are self- three methods for calculating the averageinsured or a combination of self- and fully insured. The final number of lives. To be consistent, a planregulations provide that if a plan sponsor has two or more sponsor must use the same method for thearrangements that are all self-insured with the same plan year, then duration of the plan year; however, a differentfor purposes of calculating the fee, they may be treated as a single method may be used from one plan year toapplicable self-insured health plan. Conversely, if a plan sponsor has the next.a self-insured arrangement and a fully insured arrangement, then theplan sponsor will be responsible for the fee for the self-insuredarrangement and the health insurer will be responsible for the fee for ACTUAL COUNT METHOD The average number of lives covered underthe fully insured arrangement. The rules provide that when covered the plan for the plan year can be determinedlives are counted for purposes of determining the fee under an HRA by adding the total number of lives coveredor a non-exempted health FSA, only the employee and not his or her for each day of the plan year and dividing thatdependents must be counted. This special rule for HRAs and non- total by the number of days in the plan year.exempted FSAs only applies to participants in the account plan thatdo not also participate in the major medical plan. The following EXAMPLE: Employer is the plan sponsor of ascenarios help to clarify this. self-insured health plan with a plan year of January 1, 2013 through December 31, 2013. Plan sponsor has a HRA that is integrated with another Employer determines the sum of the lives applicable self- insured health plan providing major medical covered for each day of the plan year ending coverage, and both have a calendar plan year. In order to on December 31, 2013 as 3,285,000. The participate in the HRA, an employee must also be enrolled in the average number of lives covered under the major medical coverage. Since both arrangements are self- plan will be determined by dividing 3,285,000 insured with the same plan year, the plan sponsor will have only by 365 days (the number of days in the to pay and report a single fee. If the plan sponsor is in a situation calendar plan year): 9,000. where the HRA and major medical coverage have different plan years, in order to avoid paying duplicate fees, the employer may want to address with its counsel amending the HRA to conform SNAPSHOT METHODS its plan year to the medical plan year or consolidating the two Using this method, a plan sponsor can programs under a “wrap plan.” determine the average number of lives covered for a plan year by adding the totals of Plan sponsor has a fully insured HDHP with a plan year of lives covered on one date in each quarter (a January 1 through December 31. To assist employees with the plan sponsor can use more dates if desired, as deductible it also has a self-insured HRA with the same calendar long as an equal number of dates are used for plan year. In this instance, the health insurer is responsible for each quarter) and then dividing the total by 3 Willis North America • 02/13
    • the number of dates on which the count was made. The and family which has a calendar plan year.final regulations made a slight change as to considering the Employer designates the first day of eachdates when using the snapshot method. Previously, the quarter of the plan for counting coveredproposed regulations provided that the date or dates for lives under the plan. On January 1, thereeach quarter must be the same, such as the first day of the are 2,000 covered lives, April 1 there arequarter or the last day of the quarter. However, the final 2,100 covered lives, July 1 there are 2,050regulations provide that when counting lives under the covered lives and on October 1, 2,050snap shot method, the date or dates used for the second, covered lives. The average number ofthird and fourth quarters must be within three days of the lives covered under the plan for this plandate or dates in that quarter that correspond to the date year is 2, 050. ((2,000+2,100+2,050used for the first quarter. All dates used must be within the +2,050) divided by four)same plan year. The 30th and 31st day of a month are treatedas the last day of the month for purposes of determining FORM 5500 METHODthe corresponding date for any month that has fewer than The average number of lives is determined on31 days. the basis of information in the ERISA Form 5500 filings. For plans providing coverage toEXAMPLE: Employer has a calendar plan year and uses employees and dependents, the number ofJanuary 7, 2013 as the counting date for the first quarter. lives is the sum of the number of participantsThe plan sponsor may use any date beginning with the 4th on Form 5500 at the beginning and end of theand ending with the 10th as the counting date for the second plan year. Plans providing self-only coverage(April 4-10), third (July 4-10) and fourth quarter (October calculate the number of lives by adding the4-10). number of participants reported on the Form 5500 at the beginning and end of the planWhen using the snapshot method, the final regulations year, divided by two.provide two ways the number of lives covered on adesignated date may be determined. They are the snapshot The Form 5500 method may only be used iffactor and snapshot count. the required 5500 filing is filed no later than the due date, without extensions, for the fee SNAPSHOT FACTOR METHOD: The number of lives covered imposed for that plan year. Thus, since with self-only coverage on that date, plus 2.35 times calendar plan years generally must file Form the number of lives covered with other than self-only 5500 by July 31, which is also the date for coverage. payment of the CER fee, the Form 5500 method may not be used if the plan does not EXAMPLE: Employer has a self-insured health plan file its 5500 by that date. providing coverage for employee, employee plus one and family, which has a calendar plan year. Employer EXAMPLE: Employer has a self-insured health designates the first day of each quarter for determining plan with a plan year of August 1, 2012 covered lives. On January 1 there is employee-only through July 31, 2013 offering employee, coverage for 600 participants, and 800 for other than employee plus one and family coverage. On employee-only coverage. On April 1 there is employee- Form 5500 the employer reports 4,000 only coverage for 608 lives and 800 for other than participants on the first day of the plan year employee-only coverage. On July 1 and October 1 the and 4,200 participants on the last day of the plan provides employee-only coverage for 610 lives and plan year. The plan sponsor determines the for other than employee-only coverage 809 lives. The average number of lives covered by adding average number of lives covered under the plan for 4,000 and 4,200 (8,200). the plan year is 2,497. [((600 +(2.35x800)+ ((608+(2.35x800) +((610+(2.35x809) EXAMPLE: Employer has a self-insured health +((610+2.35x809)) divided by four] plan with a calendar plan year of January 1, 2013 through December 31, 2013 offering SNAPSHOT COUNT METHOD: The actual number of lives employee-only coverage. In order to use the covered on each date. Form 550 method, employer must file its Form 5500 by July 31, 2014. On Form 5500 EXAMPLE: Employer has a self-insured health plan the employer reports 4,000 participants on providing coverage for employee, employee plus one 4 Willis North America • 02/13
    • the first day of the plan year and 4,200 participants on the last day year ending on December 31, 2012) mustof the plan year. The plan sponsor determines the average number report and pay its first CER fee by July 31,of lives covered by adding 4,000 and 4, 200 (8,200) divided by 2013. For a plan with a plan year ending ontwo (4,100). January 31, 2013, the fee must be reported and paid by July 31, 2014.Two special rules are also contained in the final regulations forplan sponsors. Although the IRS encourages electronic filing of Form 720, it may also be filed via hard copy. Health FSAs and HRAs: If a plan sponsor does not maintain an Filing electronically requires a plan sponsor applicable self-insured health plan other than a health FSA or to submit the form through an approved HRA, the plan sponsor may treat each participant’s health FSA or transmitter software developer. Additional HRA as covering a single covered life. Thus, the plan sponsor is information on electronic filing can be not required to include in its headcount for the plan the lives of found here. spouses, dependents or any other beneficiary of the individual participant. The final regulations confirm that third parties will not be permitted to report or pay First Year of CER Fee: Any reasonable method may be used by a the CER fee on behalf of plan sponsors. plan sponsor to determine the average number of lives covered Furthermore, the preamble to the final under an applicable self-insured health plan for a plan year regulations emphasizes that the CER fee beginning before July 11, 2012 and ending on or after October 1, must be paid by the plan sponsor and 2012. generally cannot be paid out of plan assets since they are not a plan expense.PAYMENT OF FEES AND FILINGOF RETURNS CONCLUSION Published final regulations for the CER feeThe CER fee falls under the excise tax provisions of the Internal clarify the amount of fee, when and how it isRevenue Code. Thus, as an excise tax, there are regulations which to be paid, and how to calculate the number ofcontain rules for depositing, paying and return filing; plan sponsors average lives upon which the fee is based.will pay and report the tax on Form 720, “Quarterly Federal Excise Sponsors of self-insured plans, particularlyTax Return.” for those whose plan years ended between October 1, 2012 and December 31, 2012,However, don’t let the name of the form fool you. Although entitled a should begin to determine how they will“quarterly” return, Form 720 for CER fee purposes is only filed once calculate the average number of lives, as wella year. Plan sponsors must report and pay the fee for a plan year by as if they will file the required IRS Form 720July 31 of the calendar year immediately following the last day of the electronically or in hard copy.plan year. The first CER fee applies to the first plan year ending on orafter October 1, 2012. For example, a calendar year plan (with a plan 5 Willis North America • 02/13
    • KEY CONTACTSU.S. HUMAN CAPITAL PRACTICE OFFICE LOCATIONSNEW ENGLAND ATLANTIC Miami, FL Moline, IL WESTERN 305 421 6208 309 764 9666Auburn, ME Baltimore, MD Mobile, AL Fresno, CA207 783 2211 410 584 7528 251 544 0212 Pittsburgh, PA 559 256 6212 412 645 8506Bangor, ME Knoxville, TN Orlando, FL Irvine, CA207 942 4671 865 588 8101 407 562 2493 Schaumburg, IL 949 885 1200 847 517 3469Boston, MA Memphis, TN Raleigh, NC Las Vegas, NV617 437 6900 901 248 3103 704 344 4856 SOUTH 602 787 6235 CENTRAL 602 787 6078Burlington, VT Metro DC Savannah, GA802 264 9536 301 581 4262 912 239 9047 Amarillo, TX Los Angeles, CA 806 376 4761 213 607 6300Hartford, CT Nashville, TN Tallahassee, FL860 756 7365 615 872 3716 850 385 3636 Austin, TX Phoenix, AZ 512 651 1660 602 787 6235Manchester, NH Norfolk, VA Tampa, FL 602 787 6078603 627 9583 757 628 2303 813 490 6808 Dallas, TX 813 289 7996 972 715 2194 Portland, ORPortland, ME Reston, VA 972 715 6272 503 274 6224207 553 2131 703 435 7078 Vero Beach, FL 772 469 2842 Denver, CO Rancho/Irvine, CAShelton, CT Richmond, VA 303 765 1564 562 435 2259203 924 2994 804 527 2343 MIDWEST 303 773 1373 San Diego, CANORTHEAST Rockville, MD Appleton, WI Houston, TX 858 678 2000 301 692 3025 800 236 3311 713 625 1017 858 678 2132Buffalo, NY 713 625 1082716 856 1100 SOUTHEAST Chicago, IL San Francisco, CA 312 288 7700 McAllen, TX 415 291 1567Morristown, NJ Atlanta, GA 312 348 7700 956 682 9423973 539 1923 404 224 5000 San Jose, CA Cleveland, OH Mills, WY 408 436 7000Mt. Laurel, NJ Birmingham, AL 216 861 9100 307 266 6568856 914 4600 205 871 3300 Seattle, WA Columbus, OH New Orleans, LA 800 456 1415New York, NY Charlotte, NC 614 326 4722 504 581 6151212 915 8802 704 344 4856 Detroit, MI Oklahoma City, OK The information contained 248 539 6600 405 232 0651 in this publication is notNorwalk, CT Gainesville, FL intended to represent legal or203 523 0501 352 378 2511 tax advice and has been Grand Rapids, MI Overland Park, KS prepared solely forRadnor, PA Greenville, SC 616 957 2020 913 339 0800 educational purposes. You610 254 7289 704 344 4856 may wish to consult your Milwaukee, WI San Antonio, TX attorney or tax adviser regarding issues raised inWilmington, DE Jacksonville, FL 262 780 3476 210 979 7470 this publication.302 397 0171 904 562 5552 Minneapolis, MN Wichita, KS Marietta, GA 763 302 7131 316 263 3211 770 425 6700 763 302 7209 6 Willis North America • 02/13