Some Good News for HRAs! IRS Issues Final Regs on PCOR Fees on Health Plan Sponsors

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The IRS has issued final regulations implementing the fees on health insurers and self-insured plan sponsors to fund the Patient-Centered Outcomes Research Institute (sometimes referred to as CER, PCOR, or PCORI fees). These fees apply to policy and plan years ending after October 1, 2012 and before October 1, 2019 (i.e., for seven full policy or plan years). For the first year (i.e., the year ending before October 1, 2013), the fee is $1.00 times the average number of covered lives under the policy or plan. For later years, the rate is $2.00, subject to adjustment based on increases in the projected per capita amount of National Health Expenditures. The regulations are effective immediately and finalize those proposed in April 2012 (see our article). Here are highlights:

  • Affected Plans and Policies. Generally, PCOR fees are paid on accident or health coverage, although there are exceptions for excepted benefits; policies or plans designed to cover primarily employees who work and reside outside the United States; and EAPs, disease-management, and wellness programs that do not provide significant benefits in the nature of medical care. The regulations confirm that retiree-only plans are subject to the fees and that COBRA coverage must be included in calculating the fees.
  • Calculation Methods. Self-insured plan sponsors can use three methods to determine the average number of covered lives: actual count, snapshot, or Form 5500. For the snapshot method, the regulations now allow the dates used in the 2nd, 3rd, and 4th quarters to fall within three days of the corresponding 1st quarter date, to avoid the complications of weekends and holidays. The regulations also clarify that the Form 5500 method will not be available to sponsors whose Form 5500 is filed on an extended deadline that is later than the July 31 due date for the PCOR fee. Examples have been added to illustrate these issues. Insurers have four methods available, two of which allow use of calendar-year data already compiled, rather than policy-year data.
  • Multiple Arrangements. If the same plan sponsor maintains multiple self-insured arrangements (e.g., major medical coverage and an HRA), the arrangements can be treated as a single plan if they have the same plan year. Commenters asked the IRS to allow fully insured and self-insured arrangements with a common plan sponsor to be treated as one plan, but the preamble explains that the statutory structure prohibits this type of integration. A related request that the fee apply only once for each covered life was also rejected on similar grounds. However, the regulations allow the sponsor of a self-insured health plan that includes both fully insured and self-insured options to disregard the lives covered solely by the fully insured option.
  • HRAs and Health FSAs. The regulations retain the special rule that allows sponsors of HRAs and nonexcepted health FSAs to count only employee-participants as covered lives and not spouses or dependents whose expenses may also be reimbursable under the plan. Keep in mind that, under the multiple arrangements rule discussed above, when an employer offers a fully insured health plan and an HRA or nonexcepted health FSA, PCOR fees will be paid by the insurer on the lives covered by the health plan (including spouses and dependents) and by the employer on the employee-participants covered by the HRA or nonexcepted health FSA.
  • Transition Relief. The final regulations retain the transition relief provided under the proposed regulations for counting covered lives during the period before regulations were issued, but requests for additional relief were denied.


EBIA Comment: The PCOR fees are smaller than the reinsurance contributions that also apply to group health plans (see our article). However, the regulations are already in effect and the first fees are to be reported and paid on July 31, 2013, so insurers and self-insured health plan sponsors that have not already begun collecting the necessary data must move quickly to do so. Note that the DOL has indicated that these fees (unlike the reinsurance contributions) generally are not permissible plan expenses under ERISA, since they are imposed on the plan sponsor and not the plan; the DOL expects to provide guidance on PCOR fee payments in the near future. For more information, see EBIA’s Health Care Reform manual at Section XXXVI.H (“Fees to Fund Research on Patient-Centered Outcomes”); EBIA’s Consumer-Driven Health Care manual at Section XXV.G.4.c (“HRAs: Fees to Fund Research on Patient-Centered Outcomes”); EBIA’s Cafeteria Plans manual at Section XVII.J.3 (“Impact of Health Care Reform on Cafeteria Plans: Fees to Fund Research on Patient-Centered Outcomes”); and EBIA’s Self-Insured Health Plans manual at SectionVI.H.3 (Fees to Fund Research on Patient-Centered Outcomes”).

Contributing Editors: EBIA Staff.