Benefits Alert 2013-04
Trish Neely, CFCI
The IRS has just posted the revised Form 720 that Employer with self-funded health plans, including HRAs and FSAs will use to report the fees. Link to the new form and instructions: Click Here.
What is PCOR you ask?
Section 4375(a) of PPACA imposes a fee on applicable* self-funded health plans and health insurance policies for each policy year ending on or after October 1, 2012, and before October 1, 2019. If your health plans are fully insured, the fee is paid by the issuer of each health plan policy.
The fee is calculated by using the applicable dollar amount in effect for the plan year multiplied by the average number of lives covered under the policy. For self-funded plans the fee is as follows:
- $1.00 for policy years ending on or after October 1, 2012 and before October 1, 2013;
- $2.00 for policy years ending on or after October 1, 2013 and before October 1, 2014; and
- Thereafter the fee is increased based on increases in the projected per capita amount of National Health Expenditures.
Timing for filing Form 720 Quarterly Federal Excise Tax Return
The return that reports liability for the fee imposed upon a self-funded plan must be filed by July 31 of the calendar year immediately following the last day of the plan year; for example:
- Plan year ending on December 31, 2012 – return must be filed by July 31, 2013; or
- Plan year ending on January 31, 2013 – return must be filed by July 31, 2014
* What is an applicable self-funded plan?
Under § 4376(c), an applicable self-funded health plan is a plan that provides “accident and health coverage” other than through an insurance policy and which is established or maintained for employees or former employees by an employer, a union, or specified groups of employers (including multiple employer welfare arrangements) where the individual receiving coverage resides (has a place of abode) in the United States. An applicable plan for purposes of employer reporting and payment of taxes includes an HRA that is integrated with a fully- insured health plan.
An applicable self-funded plan does not include an exempt governmental program. Section 4375(c)(2) provides that a specified health insurance policy does not include any insurance if substantially all of its coverage is of excepted benefits described in § 9832(c). Think in terms of what is generally an excepted benefit under HIPAA; for example excepted benefits include medical flexible spending arrangement s (MFSAs) that satisfy certain conditions, and limited-scope dental and vision coverage. Archer MSAs and HSAs are generally neither health insurance policies nor self-insured health plans and thus are not subject to the fee. An EAP, disease management program, or wellness program is exempt as long as the program does not provide significant benefits in the nature of medical care or treatment.
An HRA is not subject to a separate fee under section 4376 as long as the HRA is integrated with another applicable self-insured health plan that provides major medical coverage, and provided that the HRA and the other plan are established or maintained by the same plan sponsor.
However, where an HRA is integrated with a fully insured group health plan it is treated as an ‘‘applicable self-insured health plan.’’ In this scenario, the plan sponsor of the HRA is subject to the fee under section 4376, while the issuer of the group insurance policy for the insured group health plan is subject to the fee under section 4375, even though the HRA and the insured group health plan are maintained by the same plan sponsor.
How are the average numbers of lives calculated?
As an employer/plan sponsor with a self-funded plan, you have a choice to use any of three alternative methods found in the April 2012 Proposed Regulations.
- Actual Count Method – Determine the average number of lives covered under the plan for the plan year by calculating the sum of the lives covered for each day of the plan year and dividing that sum by the number of days in the plan year.
- Snapshot Method – Determine the average number of lives covered under the plan for the plan year by adding the totals of lives covered on one date in each quarter, or an equal number of dates for each quarter, and dividing the total by the number of dates on which a count was made. For this purpose, the number of lives covered on a date may be determined as equal to either the sum of the actual number of lives covered on the dates or the sum of (1) the number of participants with self-only coverage on that date, plus (2) the product of the number of participants with coverage other than self-only coverage on the date and 2.35.
- Form 5500 Method – Determine the average number of lives covered under the plan for the plan year based on a formula that includes the number of participants actually reported on the Form 5500 for the applicable self-funded health plan for the plan year. For a plan providing only self-only coverage, under the Form 5500 method the plan sponsor may treat the average number of covered lives under the plan for a plan year as the sum of the total participants at the beginning and the end of the plan year, in each case as reported on the Form 5500, divided by two.
For plans providing coverage that is not limited to the self-only coverage, the Form 5500 does not identify whether the coverage is self-only or family. Therefore, the number of participants reported on the Form 5500 generally is converted to covered lives by multiplying the number of participants on each date by a factor of 2.0. This factor is lower than the 2.35 factor used in the snapshot factor method because this factor takes into account participants with self-only coverage that covers one life, as well as participants with other coverage that covers two or more lives.
Accordingly, under the Form 5500 method for plans that provide coverage not limited to self-only coverage, a plan sponsor may simply add the number of participants reported for the beginning of the plan year to the number reported for the end of the plan year to determine the average number of covered lives for the plan year.
Special rule for certain plan years. The Treasury Department and the IRS included a special rule for the self-funded plan fee where the plan year began before July 11, 2012 or ends on or after October 1, 2012. This special rule recognizes the fact that the Proposed Regulations were issued after the beginning of some plan years to which the fee will apply. For these dates only, a plan sponsor may use any reasonable method to determine the average number of lives covered under the plan for purposes of calculating the fee.
What is the purpose of the fee?
PPACA created a private nonprofit called the Patient-Centered Outcomes Research Institute (PCORI) that is charged with comparative effectiveness research. The fee helps fund a Trust which is the funding source for PCORI’s work. PCORI examines health outcomes, clinical effectiveness, and the appropriateness of different medical treatments. It does this by evaluating existing studies and by conducting some of its own studies. While Medicare and HHS may take PCORI’s research into account when deciding what procedures it will cover, the research cannot be the sole justification, the agencies must allow for public input and comment.