Key Employer Funding Mechanisms under PPACA Move Forward to Fund PCORI

JULY 8, 2013 – 1:43 PMImage

The Internal Revenue Service (IRS) has released a revised Form 720 and its accompanying instructions for health insurers and sponsors of self-insured health plans seeking to comply with a provision of the Patient Protection and Affordable Care Act (PPACA) that establishes and funds the Patient-Centered Outcomes Research Institute (PCORI).  The first deadline for submission of the revised form is July 31, 2013 for many plans.  Some have characterized the excise tax assessed against health plans as one of PPACA’s hidden taxes that most Americans will pay as we subsidize PCORI indirectly through higher premium rates.

What Is PCORI?

PCORI was established by PPACA as an independent, non-profit organization charged with “evaluating and comparing health outcomes and the clinical effectiveness, risks, and benefits of medical treatments, services, procedures, drugs, and other strategies or items that treat, manage, diagnose, or prevent illness or injury.”

Funding Mechanism

PCORI’s expenses going forward will be funded by a fee on health insurers and sponsors of self-insured plans.  The fee for policy or plan years that ended after September 30, 2012 and before October 1, 2013 is $1 per covered life.  That fee increases to $2 per covered life for plan years that will end between October 1, 2013 and September 30, 2014.  For plans that end after that date, the fee will rise based upon projected increases in national health expenditures.  Under the current law, the fee will stop being collected for plan years that end after September 30, 2019.  Health insurers and self-insured plan sponsors must pay the first PCORI fees by July 31, 2013 using Form 720.

Counting Covered Lives

In order to determine the fee that they owe, insurers and sponsors of self-insured plans must calculate how many covered lives are under their plans or policies.  Federal rule explains how to determine these numbers.

Issuers of Specified Health Insurance Policies can choose from four methods:

(1) Actual count method—An issuer may determine the average number of lives covered under a policy for a policy year by adding the total number of lives covered for each day of the policy year and dividing that total by the number of days in the policy year.

(2) Snapshot method—An issuer may determine the average number of lives covered under a policy for a policy year by adding the totals of lives covered on a date during the first, second, or third month of each quarter (or more dates in each quarter if an equal number of dates is used for each quarter), and dividing that total by the number of dates on which a count is made. For purposes of this paragraph (c)(2)(iv)(A), each date used for the second, third and fourth quarters must be within three days of the date in that quarter that corresponds to the date used for the first quarter, and all dates used must be within the same policy year. If an issuer uses multiple dates for the first quarter, the issuer must use dates in the second, third, and fourth quarters that correspond to each of the dates used for the first quarter or are within three days of such corresponding dates, and all dates used must be within the same policy year. The 30th and 31st day of a month are treated as the last day of the month for purposes of determining the corresponding date for any month that has fewer than 31 days (for example, if either March 30 or March 31 is used as a counting date for a calendar year policy, June 30 is the corresponding date for the second quarter).

(3) Member months method—An issuer may determine the average number of lives covered under all policies in effect for a calendar year based on the member months (an amount that equals the sum of the totals of lives covered on pre-specified days in each month of the reporting period) reported on the National Association of Insurance Commissioners (NAIC) Supplemental Health Care Exhibit filed for that calendar year. Under this method, the average number of lives covered under the policies in effect for the calendar year equals the member months divided by 12.

(4) State form method—An issuer that is not required to file NAIC annual financial statements may determine the number of lives covered under all policies in effect for the calendar year using a form that is filed with the issuer’s state of domicile and a method similar to that described in paragraph (c)(2)(v) of this section, if the form reports the number of lives covered in the same manner as member months are reported on the NAIC Supplemental Health Care Exhibit.

Sponsors of Self-Insured Plans can choose from three methods:

(1) Actual count method—A plan sponsor may determine the average number of lives covered under a plan for a plan year by adding the totals of lives covered for each day of the plan year and dividing that total by the number of days in the plan year.

(2) Snapshot method—[This method is the same as the snapshot method described for insured policies above.  For self-funded plans, though, sponsors may use either the snapshot factor method or the snapshot count method below.]

Snapshot factor method. Under the snapshot factor method, the number of lives covered on a date is equal to the sum of: (i) The number of participants with self-only coverage on that date; plus (ii) The number of participants with coverage other than self-only coverage on the date multiplied by 2.35.

Snapshot count method. Under the snapshot count method, the number of lives covered on a date equals the actual number of lives covered on the designated date.

(3) Form 5500 method—A plan sponsor may determine the average number of lives covered under a plan for a plan year based on the number of participants reported on the Form 5500, “Annual Return/Report of Employee Benefit Plan,” or the Form 5500-SF, “Short Form Annual Return/Report of Small Employee Benefit Plan,” that is filed for the applicable self-insured health plan for that plan year, provided that the Form 5500 or Form 5500-SF is filed no later than the due date for the fee imposed by section 4376 for that plan year. For purposes of this paragraph (c)(2)(v), the average number of lives covered under the plan for the plan year for a plan offering only self-only coverage equals the sum of the total participants covered at the beginning and the end of the plan year, as reported on the Form 5500 or Form 5500-SF for the applicable self-insured health plan, divided by 2. For purposes of this paragraph (c)(2)(v), the average number of lives covered under the plan for the plan year for a plan offering self-only coverage and coverage other than self-only coverage equals the sum of total participants covered at the beginning and the end of the plan year, as reported on the Form 5500 or Form 5500-SF filed for the applicable self-insured health plan.

For more information on the ACA provisions and Updates about PCORI click here to visit Be Well Insurance Solutions’s blog.

Be Well Insurance Solutions will keep you posted on future developments in this area. In the meantime, please visit  http://www.BeWellInsuranceSolutions.com to view past blogs and Legislative Alerts. Or, you may visit www.HealthcareExchange.com  for more blog posts, polls, surveys and numerous resources.

The views expressed in this post do not necessarily reflect the official policy, position, or opinions of Be Well Insurance Solutions. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.

Article by:  Michael Gomez 

http://www.healthcareexchange.com/member/michael-gomes

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