The Affordable Care Act (ACA) established a private, nonprofit corporation called the Patient-Centered Outcomes Research Institute (Institute). The Institute’s task is to help patients, policymakers and health care providers make informed health decisions by advancing evidence-based medicine through comparative clinical effectiveness research.
ACA requires health insurance issuers and sponsors of self-insured health plans to pay fees to help finance the Institute’s research. These fees are called comparative effectiveness research fees or CER fees. They may also be referred to as PCOR or PCORI fees.
On Dec. 5, 2012, the Internal Revenue Service (IRS) issued final regulations on the CER fees. The final regulations adopt the proposed regulations that the IRS issued on the CER fees in April 2012, with a few modifications.
When are the Fees Effective?
The CER fees apply for plan years ending on or after Oct. 1, 2012. The CER fees do not apply for plan years ending on or after Oct. 1, 2019. For calendar year plans, the research fees will be effective for the 2012 through 2018 plan years.
How Much are the Fees?
For plan years ending before Oct. 1, 2013 (that is, 2012 for calendar year plans), the research fee is $1 multiplied by the average number of lives covered under the plan. For plan years ending on or after Oct. 1, 2013, and before Oct. 1, 2014, the fee is $2 multiplied by the average number of lives covered under the plan. For plan years ending on or after Oct. 1, 2014, the CER fee amount will grow based on increases in the projected per capita amount of National Health Expenditures.
The CER fees are based on the average number of covered lives under the plan or policy. This generally includes employees and their enrolled spouses and dependents. The final regulations outline a number of alternatives for issuers and plan sponsors to determine the average number of covered lives.
Who pays the fees?
The CER fees generally apply to insurance policies providing accident and health coverage and self-insured group health plans. The final regulations contain some exceptions to this general rule and also clarify how the CER fees apply to certain types of health coverage arrangements.
For example, the final regulations explain that the CER fees do not apply if substantially all of the coverage under a plan or policy is for excepted benefits, as defined under HIPAA. The regulations also clarify that the CER fees may apply to retiree-only plans and policies, even though retiree-only coverage is exempt from many of ACA’s other requirements.
Special Rule for HRAs and Health FSAs
The final regulations do not provide an overall exemption from the CER fees for health reimbursement arrangements (HRAs). However, the final regulations do state that an HRA is not subject to a separate research fee if it is integrated with another self-insured plan providing major medical coverage, as long as the HRA and the plan are established and maintained by the same plan sponsor and have the same plan year. This rule allows the sponsor to pay the CER fee only once with respect to each life covered under the HRA and the other plan.
If an HRA is integrated with an insured group health plan, the plan sponsor of the HRA and the issuer of the insured plan will both be subject to the research fees, even though the HRA and insured group health plan are maintained by the same plan sponsor.
The same analysis applies to health flexible spending accounts (FSAs) that do not qualify as excepted benefits.
How are the Fees Reported and Paid?
The final regulations direct issuers and plan sponsors to pay the CER fees once a year on IRS Form 720 (Quarterly Federal Excise Tax Return). Form 720 and full payment of the research fees will be due by July 31 of each year. It will generally cover plan years that end during the preceding calendar year. Thus, the first possible deadline for filing Form 720 is July 31, 2013.
Please contact your Business Benefits Group representative for additional information on CER fees.