Research Fees to Be Imposed on Self-Insured Health Plans Beginning October 2012

• Per Person Fee Amount. The fee for self-insured health plans is $2 ($1 for plan years ending before October 1, 2013) multiplied by the average number of lives covered during the plan year. For plan years ending on or after October 1, 2014, the fee is increased relative to increases in the projected per capita amount of National Health Expenditures announced by the Department of Health and Human Services. Identical fees apply to issuers of specified health policies—which generally means any accident or health policy, including a policy under a group health plan, which is issued with respect to individuals residing in the United States—but the fee is based on the policy year instead of the plan year. These fees are imposed by Code section 4375 in the case of health policies and Code section 4376 in the case of self-insured health plans.
• Obligor. The issuer is liable for the fees imposed on specified health policies, while the plan sponsor is liable for fees imposed on self-insured group health plans. The plan sponsor is defined as the employer in the case of a plan established by a single employer. According to the preamble, the Labor Department is considering whether the fees may be paid with plan assets, in the case where the self-insured plan is subject to ERISA.
• Self-Insured Health Plan. Under Code section 4376, the fee is imposed on "applicable self-insured health plans"—which is broadly defined to include generally any plan that provides health coverage if any portion is provided other than through an insurance policy and the plan is maintained by one or more employers for the benefit of their employees or former employees. Retiree-only plans fall within this definition. The definition includes also plans maintained by employee organizations for their members or former members, plans maintained by voluntary employees' beneficiary associations, and other sponsors. Governmental entities are included, although certain governmental programs are exempt from the fee, including Medicare, Medicaid, CHIP, Federal programs for the Armed Forces or veterans, and Federal programs for Indian tribes.
• HRAs. A health reimbursement arrangement (HRA) may or may not be separately subject to the fee. If the HRA is integrated with another "applicable self-insured health plan" that provides major medical coverage and is maintained by the same plan sponsor, the combined arrangement will be subject to a single fee. However, an HRA that is integrated with an insured group health plan is treated as an "applicable self-insured health plan" and will itself be subject to the fee even if both are maintained by the same plan sponsor.
• Excepted Benefits. A plan that provides benefits substantially all of which are "excepted benefits" under Code section 9832(c) is not an "applicable self-insured health plan" subject to the fee. "Excepted benefits" includes limited scope dental or vision benefits if they are offered separately (i.e., where the participant can elect not to receive the coverage, and if the coverage is elected the participant will pay an additional premium). Hospital indemnity or specified illness coverage would also be "excepted benefits" if the coverage is offered under a separate policy (which is not coordinated with any exclusion under the sponsor's group health plan), and the benefits are paid regardless of whether benefits are provided for the same event under the sponsor's group health plan. Accident-only coverage or disability-only coverage would also be "excepted benefits."
• Health FSAs. Health flexible spending accounts (Health FSAs) that meet the definition of an excepted benefit under Code section 9832(c) are also not considered "applicable self-insured health plans" subject to the fee. A Health FSA is excepted if: (1) other group health plan coverage, not limited to excepted benefits, is made available to the participants for the year, and (2) the maximum benefit payable under the Health FSA for the year does not exceed two times the participant's salary reduction election (or, if greater, $500 plus the participant's salary reduction election). Health FSAs that are not excepted benefits are "applicable self-insured health plans" subject to the fee. However, if the Health FSA is integrated with another "applicable self-insured health plan" that provides major medical coverage and is maintained by the same plan sponsor, a single fee will apply (as with HRAs, described above).
• Calculation of the Fee. The fee for the plan year is determined by multiplying the applicable per person amount times the average number of lives covered under the plan for the plan year. The plan sponsor can calculate the average number of covered lives under any one of three permissible methods detailed in the regulation: the actual count method, snapshot method, or Form 5500 method. The same method must be used consistently for the duration of the plan year, although a different method may be used from one year to the next. A special rule applies to Health FSAs and HRAs in determining the average number of covered lives (i.e., where the plan sponsor does not maintain an "applicable self-insured health plan" that provides major medical coverage, or does maintain such a plan but participants in the Health HSA or HRA do not participate in the other plan so must be counted in determining the covered lives in the "combined" plan). Under the special counting rule, each participant's Health FSA or HRA is treated as covering a single covered life (i.e., the sponsor is not required to include any spouse, dependent or other beneficiary).
• Reasonable Method Permitted. For the first year the fee is in effect (i.e., plan years beginning before July 11, 2012 and ending on or after October 1, 2012) plan sponsors are permitted to use "any reasonable method" to determine the average number of covered lives.
• Filing of Return and Payment of Fee. Plan sponsors and issuers will report and pay the fees only once per year, on Form 720 - Quarterly Federal Excise Tax Return, which will be due by July 31 of each year. The Form may be filed electronically. A mechanism for third-party reporting and payment will not be established, according to the preamble.

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Copyright 2012, Deloitte.

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