PPACA section 6301 amended Title XI of the Social Security Act to establish the Patient‐Centered Outcomes Research Institute (“Institute”), which is generally tasked with conducting research to evaluate and compare the clinical effectiveness, risks and benefits of various medical treatments, services, procedures, drugs, and other strategies that treat, manage, diagnose or prevent illness or injury. 

PPACA also amended the Internal Revenue Code (“Code”) to create the Patient‐Centered Outcomes Research Trust Fund (“Trust Fund”) (new Code § 9511) to fund the Institute and new annual fees payable by health insurers and sponsors of self-insured health plans to help fund the Trust Fund (new Code §§ 4375-4377).  These fees are effective for policy or plan years ending after September 30, 2012 and generally apply for each policy or plan year from 2012 through 2018 (for calendar year plans). 

On June 9, 2011, the IRS released Notice 2011‐35 (the “Notice”) which requests comments on the implementation of the fee.  The Notice provides some insight regarding the fee’s amount and effective date, possible mechanics of calculating and paying the fee, and possible safe harbors that the IRS may ultimately adopt in proposed regulations.    The Notice states that the IRS will be issuing proposed regulations regarding the fee and will consider comments received by September 6, 2011 in response to the Notice. 

For the first year the fee is assessed (i.e., policy and plan years ending after September 30, 2012 and before October 1, 2013), the fee is one dollar multiplied by the average number of covered lives (e.g., employee plus spouse and dependents).  For the second assessment year (i.e., policy and plan years ending after September 30, 2013 and before October 1, 2014), the fee increases to two dollars multiplied by the average number of covered lives.  In later years, the fee is indexed according to the increase in per capita national health expenditures as determined by the Department of Health and Human Services. 

The Notice requests comments regarding “reasonable methods” an insurer may use to determine the average number of lives covered under a policy.  It describes a current reporting obligation of insurers ‐‐ the Supplemental Health Care Exhibit developed by the National Association of Insurance Commissioners (“Exhibit”) ‐‐ and suggests that the IRS may develop a safe harbor under which the IRS will not challenge an insurer’s calculation of the fee based on the number of lives reported in the Exhibit.  The Notice requests comments on this possible safe harbor as well as other reasonable methods that insurers may use to determine the average number of lives covered under the policy.

The Notice also requests comments on "reasonable methods" a sponsor of a self-insured plan may use to determine the average number of lives covered under an applicable self‐insured plan, and whether guidance should provide a safe harbor that would permit sponsors to compute the average number of lives covered based on a formula to account for the number of dependents (instead of requiring that the actual dependents covered under the plan be counted). 

In addition, the Notice requests comments regarding whether each insurer and plan sponsor subject to the fee should be required to report and pay fees annually (as opposed to quarterly), and whether reporting and payment should occur on the same calendar date regardless of the policy year or plan year of any individual insurer or plan sponsor.  It also requests comments regarding the need for definitions of "policy year" or "plan year" for purposes of the fee, and whether transition rules may be needed for the first policy or plan year in which the fee is effective (e.g., to determine the average number of lives covered for such first year). 

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Got a health-care reform question?  You can ask YOUR health-care reform legislation question online at http://www.surveymonkey.com/s/second_opinions 

You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html  

Contributors:

Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.

PLEASE NOTE:  This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.