The Patient Protection and Affordable Care Act established two fees to be paid by insurers and self-insured plans: (1) the Transitional Reinsurance Program (TRP) fee to raise revenue for health insurance issuers that cover high risk individuals in the individual market for a three-year transition period, and (2) the Patient-Centered Outcomes Research Institute (PCORI) trust fund fee to fund comparative effectiveness research for policy and plan years ending on or after October 1, 2012 through October 1, 2019. As the deadlines to begin making these fees rapidly approaches, new guidance has been issued to clarify the issuers and plans subject to the fees, the amounts and how the fees are to be calculated, and when the fees are due.

While the TRP fees and the PCORI fees apply to similar issuers and plans, and use similar methods to calculate the amount of the fees, there are significant differences between the fees.

Generally, the new fees apply to issuers of health insurance coverage and to self-funded group health plans. Certain exclusions apply, such as Health Insurance Portability and Accountability Act (HIPAA) excepted benefits (i.e., disability income insurance, workers’ compensation or similar insurance, and limited scope dental or vision benefits, if offered separately). Stop loss and indemnity reinsurance, as well as employee assistance programs, wellness programs, and disease management programs, if they do not provide significant benefits in the nature of medical care or treatment, are also excluded from the definition of applicable self-insured health plans. However, some health flexible spending arrangements and health reimbursement arrangements will give rise to fee liability. Retiree coverage will also need to be included in the calculation for the PCORI fee. However, the TRP fee only applies to retiree coverage in which Medicare is the individual’s secondary payer.

The PCORI fee is $1 per covered life for plan years ending on or after October 1, 2012 and before October 1, 2013, and $2 per covered life for plan years ending on or after October 1, 2013. The PCORI fee will be adjusted for increases in health costs for years 2014-2018. The new proposed TRP fee regulations provide for a monthly fee of $5.25 per covered life for 2014 or $63 annually per covered life. The rate for the TRP fee in subsequent years will be set by the U.S. Department of Health and Human Services in annual notices.

The guidance provides for a few different methods of counting the average number of covered lives in order to determine the annual fee, including using the information provided on the annual IRS Form 5500 (this method may be unavailable if an extension for the filing deadline is used). In addition, the rules include certain aggregation provisions that permit plan sponsors that maintain two or more group health plans to treat such plans as a single self-insured group health plan for purposes of determining the applicable fee. Individuals enrolled in continuation coverage must also be included.

The PCORI fee is an annual per capita fee due on each July 31st following plan or policy years ending on or after October 1, 2012 but before October 1, 2019 (i.e., 2012 to 2018 calendar plan years). For calendar year plans, the first PCORI fee will be due by July 31, 2013. The TRP fee is an annual per capita fee due on December 31st for each of calendar years 2014 through 2016. Regardless of plan year, the first TRP fee is due by December 31, 2014.

Differences also exist in the deductibility of the two health care reform fees. The PCORI fee is treated as an excise tax that is not tax-deductible and may not be paid with plan assets. However, the TRP fee may be deductible as a bona fide business expense. In addition, the U.S. Department of Labor has reviewed the proposed regulations for the TRP fee and has determined that since the TRP fee is required to be paid by the plan under the Patient Protection and Affordable Care Act, the TRP fee may be paid with plan assets.

With some fees due on July 31, 2013, insurance providers and plan sponsors should start gathering the information needed to determine if a plan or policy will give rise to a fee and the best method for calculating the required fee in order to avoid any penalties for failure to timely pay.

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