The Employer’s Playbook for Affordable Care Act Compliance: Self-Insured Plans - Remember - July 31, 2013 Deadline for Paying PCORI Fees

by Saul Ewing Arnstein & Lehr LLP


Media coverage of the one year delay in certain Affordable Care Act provisions might mislead some employers into thinking they have no obligations. Many requirements still take effect this year and in 2014. Here is one of the next deadlines. On or before July 31, 2013, employers that maintain self-insured group health plans with a plan year which ended between October 1, 2012 and December 31, 2012 must file Form 720, Quarterly Federal Excise Tax Return, and pay PCORI fees equal to $1.00 multiplied by the average number of covered lives under the plan. PCORI fees apply to all group health insurance plans, insured and self-insured, regardless of whether the plan is sponsored by a small or large employer. However, the insurance carrier is responsible for paying the fees on fully-insured arrangements.

The PCORI fee is used to fund the Patient-Centered Outcomes Research Institute (PCORI), that then compiles and distributes comparative clinical effectiveness research findings. The purpose of the Institute’s research is to help various providers of health care, consumers of health care and policy-makers make informed health decisions. The annual PCORI fee deadline is July 31 of the year following the calendar year in which the plan year ends. For example, a Form 720 that reports the liability for a plan year ending on December 31, 2012 must be filed by July 31, 2013. The fee is $1.00 for any plan year that ends before October 1, 2013, and $2.00 for any plan year that ends before October 1, 2014, with adjustments each year thereafter based upon certain increases in health expenditures. These fees will continue to be due and payable for calendar year plans through 2018. While there are three prescribed methods for determining average covered lives (actual count method, snapshot method and Form 5500 method), a plan sponsor may rely on a transition rule for this first filing and determine the average number of covered lives using any “reasonable method.”

A “covered life” includes the employee and his or her beneficiaries - any other individual with coverage. For example, if an employee covers his or her spouse and four children, that is a total of six covered lives. Any individual with COBRA coverage must also be counted. Also, the fee must be paid on each applicable self-insured health plan, unless there is a specific exception. Self-insured programs that are treated as “excepted” benefits for certain provisions of the Health Insurance Portability and Accountability Act (HIPAA) are not generally subject to the fee. HIPAA excepted benefits may include vision benefits, dental benefits and medical Flexible Spending Accounts or FSAs.

A non-duplication rule applies so that an individual who is covered by two or more self-insured programs that are subject to the PCORI fee will be counted as only one covered life. However, a Health Reimbursement Account or HRA is a self-insured health care program. Unless it is integrated with a self-insured medical plan, a separate fee must be paid on one covered life for each employee covered by an HRA. Stand-alone “retiree only” HRAs are still permitted and the PCORI fee would apply for each retiree covered by such an HRA.

The following chart shows the types of self-insured group health care arrangements that may be subject to the PCORI fee:

Active Employee Medical Coverage Yes.
Retiree Medical Coverage Yes.
Vision Maybe.* If Vision qualifies as an excepted benefit under HIPAA, then no. Vision is an excepted benefit if it is self-insured, the employee makes a contribution toward the coverage and can separately elect vision. If the exception does not apply, when both medical and vision are provided to the same individual, the fee is paid only once under the non-duplication rule.
Dental Maybe.* If Dental qualifies as an excepted benefit under HIPAA, then no. Dental is an excepted benefit if it is self-insured, if the employee makes a contribution toward the coverage and can separately elect dental. Where both medical and dental are provided to the same individual, the fee is paid only once under the non-duplication rule.
Health Flexible Spending Account (“FSA”) Maybe. If the FSA qualifies as an excepted benefit under HIPAA, then no. An FSA is an excepted benefit if the maximum benefit payable for the year does not exceed two times the employee’s salary reduction election amount (or, if greater, the amount of the employee’s salary reduction election plus $500). If an employee is covered by a self-insured group health plan and the health FSA, then, under the no duplication rule, pay only once for each covered life under both programs.
Health Reimbursement Account (“HRA) Maybe. If the HRA is a stand-alone program (such as a retiree-only HRA), a fee is due on one covered life for each employee with an HRA; if the HRA is paired with a fully-insured health care plan, a fee is due on one covered life for each employee with an HRA; if your self-insured medical plan is paired with an HRA, , under the no duplication rule, pay only once for each covered life under both programs.
Employee Assistance Program (“EAP”) No. The regulations except any EAP unless the program provides “significant benefits”** in the nature of medical care or treatment.
Wellness and Disease Management Programs. No. The regulations except any wellness program unless the program provides “significant benefits”** in the nature of medical care or treatment.
Health Savings Account (“HSA”) No. Not considered a “plan.”
Stop Loss Coverage No.

* For any group that gets “free” self-insured vision or dental coverage and/or “automatic” free self-insured vision or dental coverage, the vision and/or dental coverage would not constitute an “excepted benefit” under HIPAA.

** The term “significant benefits” is not defined in the regulations.

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.

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