Under the Affordable Care Act (ACA), a fund for a new nonprofit corporation to assist in clinical effectiveness research was created. To aid in the financial support for this endeavor, certain health insurance carriers and health plan sponsors are required to pay fees based on the average number of lives covered by welfare benefits plans. These fees are referred to as either Patient-Centered Outcome Research Institute (PCORI) or Clinical Effectiveness Research (CER) fees.
The applicable fee was $2.17 for plan years ending on or after October 1, 2015 and before October 1, 2016. For plan years ending on or after October 1, 2016 and before October 1, 2017, the fee is $2.26. Indexed each year, the fee amount is determined by the value of national health expenditures. The fee phases out and will not apply to plan years ending after September 30, 2019.
As a reminder, fees are required for all group health plans including health reimbursement arrangements (HRAs), but are not required for health flexible spending accounts (FSAs) that are considered excepted benefits. To be an excepted benefit, health FSA participants must be eligible for their employer’s group health insurance plan and may include employer contributions in addition to employee salary reductions. However, the employer contributions may only be $500 per participant or up to a dollar for dollar match of each participant’s election.
HRAs exempt from other regulations would be subject to the CER fee. For instance, an HRA that only covered retirees would be subject to this fee, but those covering dental or vision expenses only would not be, nor would employee EAPs, disease management programs, and wellness programs be required to pay CER fees.
How are Fees Calculated?
Fees may be calculated for nonexempt HRAs and health FSAs by counting each participant, without regard to spouses and dependents also covered by the plans, if the plan sponsor has no other relevant self-insured plans. Also, if employers have more than one qualifying self-insured plan, they may be considered as one plan so long as all the plans have the same plan year.
Relying on the “one plan” method does have its drawbacks. Let’s say employers sponsor a self-insured health plan and a nonexempt health FSA or HRA. For CER fee purposes, the count would start with the health plan and include all covered lives including the employee, spouse and all dependents. Anyone not enrolled in the employer’s health plan, but participating in nonexempt HRAs or health FSAs, would be counted as one additional covered life.
Who Pays the Fees?
For self-insured plans the plan sponsor would be liable to pay the fees. Generally, the plan sponsor will be the employer. For fully-insured plans, the insurance carrier will need to pay the fees.
Fees are reported and paid once per year with the submission of Form 720 (Quarterly Federal Excise Tax Return). Fees are due by July 31 of the year following the end of the plan year and must be submitted with the Form 720 filing.
Calculating and Submitting the Fee for Self-Insured Plans
Plan administrators can use one of several methods for calculating the average number of lives covered under an applicable self-insured health plan.
- Actual Count Method: Add the total number of covered employees under the plan on each day of the plan year and divide that number by the total number of days in the plan year.
- Snapshot Method: Choose a date(s) during the first, second or third month of each quarter and add the total number of covered employees during those dates and divide by the number of dates on which a count was made. For example, the total of the number of covered lives on January 15, April 15, July 15 and October 15 divided by 4. Each date used for the second, third and fourth quarter must be within 3 days of the first quarter date.
The number of lives covered on a date is equal to the sum of (1) the number of participants with self-only coverage on that date; plus (2) the number of participants with coverage other than self-only coverage on the date multiplied by 2.35; or,
The number of lives covered on a date equals the actual number of lives covered on the designated date.
- Form 5500 Method: For a plan offering self-only coverage, combine the total participating employee count at the beginning of the plan year with the total participating employee count at the end of the plan year and divide by 2.
For plans offering self-only and other than self-only, covered lives equals the sum of total participants covered at the beginning and the end of the plan year.
Ensure your employers are informed and compliant with this ACA requirement.
The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.
