New Affordable Care Act Fees Impact Group Health Plans in 2013 and 2014

On July 31, 2013, the first of various fees will be due that are imposed by the Affordable Care Act on self-insured group health plans and/or issuers of insured health policies providing accident and health coverage. Beyond the practical steps towards compliance, employers that sponsor self-insured and insured group health plans should consider these fees and their cumulative effect as an important part of their Affordable Care Act compliance analysis and strategy.

The first fee is commonly called the "PCORI fee" or the "Section 4376 fee" and is intended to partially fund the Patient-Centered Outcomes Research Institute that was founded as a result of the Affordable Care Act. The PCORI fee is applicable to plan years ending on or after October 1, 2012, and extends through plan years ending before October 1, 2019. The fee must be paid no later than July 31 of the year following the last day of the policy or plan year. Therefore, the first PCORI fee is due for 2012 calendar year self-insured plans and certain fiscal year plans by July 31, 2013.

As applied to self-insured group health plans, the PCORI fee for the first year (for plan years ending on or after October 1, 2012 and before October 1, 2013) is equal to $1.00 multiplied by the average number of covered lives in the group health plan. The PCORI fee for the second year will increase to $2.00 times the average number of covered lives in the group health plan and is indexed for increases in national health expenditures for the following years. The number of covered lives on which the fee is based generally includes active employees, former employees and COBRA-qualifying beneficiaries, as explained in the final regulations issued December 6, 2012.

Sponsors of self-insured health plans must report and pay the PCORI fee to the IRS on Form 720 -- Quarterly Federal Excise Tax Return. The PCORI regulations directly prohibit using "third-party reporting" arrangements, as is otherwise permitted in the context of the payment of payroll taxes. Sponsors of self-insured health plans should not delay compliance preparations until the IRS Form 720 is revised to accommodate the PCORI fee. It is unlikely that the fee deadline will be delayed for lack of a revised form.

Thus, employers that sponsor self-insured calendar year group health plans should be taking steps now to prepare to comply with the PCORI fee payment deadlines in July 2013. Sponsors of insured health plans, while not directly liable for payment of the PCORI fee, will likely see an indirect effect as the cost is passed down by insurance issuers.

Other Fees Coming in 2014

From 2014 to 2016, self-insured major medical plan sponsors and health insurance issuers will be responsible for paying a reinsurance program fee to the U.S. Department of Health and Human Services (HHS). The reinsurance program fee is intended to support temporary reinsurance programs for the state individual insurance markets. The amount of the fee or the contribution rate to be paid by self-insured plans and health insurance issuers will be based upon an annual uniform national contribution rate set by HHS. Current HHS guidance indicates that the reinsurance fee will be approximately $63 per covered life.

In addition, starting in 2014, health insurance issuers will be required to pay an annual fee based on their market share of the United States health insurance business.

While these two 2014 fees are not directly imposed on insured health plans, employers that sponsor group health plans can expect health insurance issuers to pass down the cost, thus impacting the overall cost of the provision of insured health care coverage of employees.