Fees Under The New Healthcare Reform Act Set To Begin

by Fisher Phillips

The new healthcare reform law includes a number of new taxes and fees which are rarely mentioned by the law’s supporters. On December 5, IRS announced final regulations governing new fees on health insurers and employer sponsors of self-insured health plans, designed to fund the “Patient-Centered Outcomes Research Trust.” This Trust finances an “Institute” tasked with “advancing the quality and relevance of evidence-based medicine through the synthesis and dissemination of comparative clinical effectiveness research findings.” Got that?

Say What?

Since insurers must pay the fee with respect to insured plans, the following discussion centers on obligations of self-funded plan sponsors. For calendar-year plans, the first payment is due July 31, 2013. Employers sponsoring self-insured plans need to be aware of these issues now since 2012 plan data will be necessary to calculate the fee owing in 2013.

The regulations describe how the new fee is to be calculated and paid by sponsors of self-insured plans for plan years ending on or after October 1, 2012 and before October 1, 2019, when the fee is scheduled to expire. The fee is based on the number of lives covered by the plan, which means the sponsor pays on the basis of participants (including COBRA recipients), as well as covered spouses, dependents and other beneficiaries.

Since the fee affects all plans with plan years ending on and after October 1, 2012, it is required for most plans this year, including all calendar-year plans. For plan years ending before October 1, 2013 (for most plans, the current plan year), the fee is $1 times the average number of lives covered under the plan.

For plan years ending on and after October 13, 2013, the fee is $2 per average number of lives, and for years ending after October 13, 2014, the fee will increase based on the projected per capita amount of national health expenditures. Fees are due no later than July 31 of the year following the last day of the plan year. For calendar year plans, that means the first fee is due July 31, 2013.

Who’s Covered?

A self-insured health plan is defined as any plan that provides accident or health coverage, if any portion of the coverage is provided “other than through an insurance policy.” Certain plans fall within an exception to this requirement, including those that provide benefits that are “substantially all ‘excepted’ benefits,” EAPs, disease-management or wellness programs that do not provide significant benefits in the nature of medical care or treatment, and plans designed to cover primarily employees who are working or residing outside of the U.S.

“Excepted benefits” are benefits such as accident-only coverage, workers’ compensation, limited-scope dental or vision care, long-term care, coverage for a specific disease, or plans offering hospital or other fixed indemnity coverage.

Significantly, two or more arrangements established or maintained by the same plan sponsor that provide for accident and health coverage and have the same plan year, are treated as a single plan. For example, a plan sponsor with separate major medical and prescription drug plans, or who sponsors an HRA, sponsors only one plan as long as all have the same plan year. This avoids paying multiple fees for essentially the same coverages.

Adding Up The Numbers

There are three ways to determine the average number of lives under a plan. These are the “actual count method,” the “snapshot method,” and the “Form 5500 method.” Sponsors are required to use the same method for all plans each year, but may switch methods from year to year:

Actual Count Method
Under this method, the sponsor adds up the daily tally of covered lives during the plan year and divides by the total number of days in the plan year.

Snapshot Method
Under this method, the sponsor adds total lives on one or more days during each of the quarters of the plan year, and divides by the total number of dates on which a count was made. Each date used in quarters 2, 3 and 4 must be within 3 days of the date in the first quarter that corresponds with that date. For example, if the sponsor counted lives on the 15th of each month in the first quarter, it must use a date within 3 days of the 15th in the following months.

If this method is used, lives on a particular date can be determined using either a “snapshot factor” or a “snapshot count.” The “snapshot factor” method counts the number of individuals with self-only coverage on a day and multiplies that by 2.35. The “snapshot count” method uses the actual number of lives on the designated date.

Form 5500 Method
This method can be used as long as the 5500 is filed on or before July 31 of the year following the year in question. If the plan is restricted to self-only coverage, the sponsor adds the total participant counts reported on the 5500 at the beginning and at the end of the plan year, and divides by two to determine covered lives. If there are coverages in addition to self-only coverage, total lives equals the sum of the reported beginning and year-end participant counts.

There are special rules for health FSAs and HRAs. In the case of an FSA or HRA, the sponsor does not need to count spouses, dependents or other beneficiaries. And, as noted above, if the HRA and/or FSA has the same plan year as the sponsor’s health plan, it will not be double counted for purposes of paying the fee. Similarly, if a sponsor has both self-insured and insured options under its plan, the sponsor is not required to pay a fee for insured lives.


This is obviously new territory for plan sponsors, and it’s important to get started correctly under the new law. If you have any questions about any of these requirements or methods of calculating liability, contact any member of the Fisher & Phillips Employee Benefit Practice Group.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Fisher Phillips | Attorney Advertising

Written by:

Fisher Phillips

Fisher Phillips on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.