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Proposed Rules Released Implementing New Fees on Health Plans - May 4, 2012

The Affordable Care Act mandates that a fee be assessed on health insurance issuers and plan sponsors of self-insured health plans to fund the Patient-Centered Outcomes Research Institute. The IRS recently proposed rules implementing the new fees. Under the proposed rules, employers sponsoring self-insured health plans, including HRAs, are subject to the fees. This is the case even if the HRA is integrated with a fully-insured plan. In this scenario, both the health insurance issuer and employer would be assessed a fee. Health FSAs qualifying as excepted benefits, stand-alone dental and vision plans, employee assistance programs, wellness programs and health savings accounts are excluded and not subject to the new fee. For plan years ending on or after October 1, 2012, the fee is $1.00 multiplied by the average number of covered lives (including dependents). The fee is increased to $2.00 for plan years ending on or after October 1, 2013 and may be further increased thereafter based on an increase in the projected per capita amount of national health expenditures.


The "average number of covered lives" can be determined in one of three ways:

  • (i) the number of lives covered for each day of the plan year divided by the number of days in the plan year;
  • (ii) the total lives covered on one day in each quarter divided by the sum of the number of dates on which a count was made; or
  • (iii) using the plan sponsor's Form 5500 participant counts.

Employers who sponsor self-insured plans, such as HRAs, are required to report and pay the fee once per year on Form 720, the Quarterly Federal Excise Tax Return. The Form must be filed by July 31 of each year for the plan year ending in the preceding calendar year.