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IRS Proposes Regulations on Fees Under the Affordable Care Act

    Client Alerts
  • June 01, 2012

The IRS recently proposed regulations providing guidance on fees imposed under the Affordable Care Act (the "Act") on health insurers and self-insured health plans. These fees will help to fund the Patient-Centered Outcomes Research Institute (the "Institute"), which is tasked with evaluating and comparing the effectiveness of medical treatments, services, procedures and drugs.

For years ending on or after October 1, 2012, insurers and employers maintaining self-insured plans will pay $1 times the average number of lives (including all employees, spouses and dependants) covered by a health plan. For years ending on and after October 1, 2013, the fee will increase to $2 times the average number of lives covered, and may be increased for years beginning on or after October 1, 2014 based on the percentage increase in the per capita amount of national health care expenditures. Insurers and employers must report and pay these fees annually on IRS Form 720, which will be due by July 31 following each applicable year and may be filed electronically. 

Under the proposed regulations, the fee is imposed on insured and self-insured group health plans, including retiree-only plans and certain health reimbursement arrangements (HRAs), dental and vision plans, and health flexible spending accounts (FSAs). Multiple self-insured arrangements maintained by the same employer generally are subject to a single fee. For example, an HRA that is integrated with a self-insured plan that provides major medical coverage is not subject to a separate fee, but an HRA that is integrated with an insured plan is subject to the fee. The fee does not apply to FSAs that are HIPAA-excepted benefits (funded entirely from the employee salary deferrals, or employer contributions that do not exceed twice the employee deferrals or $500, whichever is greater).  Plan sponsors are not responsible for paying fees with respect to expatriate-only plans, employee assistance programs, wellness programs and disease management programs that do not provide significant medical benefits.

Employers maintaining self-insured plans should be prepared to calculate the average number of covered lives and file Form 720.