To help offset the costs associated with the implementation of the health care reform legislation, also known as the Patient Protection and Accordable Care Act of 2010 (PPACA), the law imposes certain fees on health insurers and sponsors of self-insured health plans.

PCORI FEE

One PPACA fee is intended to fund the Patient Centered Outcome Research Institute (PCORI), a research institute created under PPACA to advance research related to evidence-based medicine. The PCORI fee is effective for each plan year ending after October 1, 2012 and before October 1, 2019. The PCORI fee is $1.00 per covered life for the first plan year for which it is due, $2.00 per covered life for the second plan year for which it is due, and for years three through seven, the PCORI fee is adjusted by each year’s health care inflation rate as determined by the US Department of Health and Human Services (HHS). The final rules issued on December 6, 2012, contain several methods for determining the number of covered lives under a health plan.

A sponsor of a self-insured health plan is responsible for payment of the PCORI fee. For insured plans, the insurance company is responsible for paying the PCORI (although it is expected that insurers will pass the PCORI fee and the TRP fee (discussed below) on to the employer purchasing the policy). The PCORI fee is due no later than July 31 of the calendar year following the calendar year in which the plan year ends. For calendar year plans, the first PCORI fee for the 2012 plan year is due by July 31, 2013. PCORI fees should be submitted to the IRS together with a properly completed IRS Form 720.

TRP FEE

A more substantial fee arising under PPACA is expected to be in effect for calendar years 2014, 2015 and 2016. The Transitional Reinsurance Program (TRP) was created under PPACA to help stabilize health insurance premiums once the requirements of PPACA become more fully effective in 2014. In addition, PPACA requires that the fee associated with TRP be increased so that the US Treasury receives a total of $5 billion over the three-year period that the TRP fee is expected to be in effect.

The TRP fee is calculated based on the revenue necessary to be collected. Specifically, PPACA provides that the aggregate amount of TRP fees to be collected for 2014 is approximately $12 billion. Accordingly (and based on recently issued proposed rules), the TRP fee per covered life for 2014 is expected to be approximately $5.25 per month (or $63.00 per year). However, the specific amount of the TRP fee for 2014 is not yet finalized.

In any case, the TRP fee is expected to be reduced for 2015 and 2016 because the aggregate fees due to be collected in those years are $8 billion and $5 billion, respectively. However, guidance indicates that the US Department of Health and Human Services (HHS) is considering a leveling mechanism that may reduce the 2014 TRP fee to some degree by raising the TRP fee that would be due in 2015 and 2016. Final guidance from HHS will determine the TRP fee for each year.

The actual TRP fee owed by an insurance company or sponsor of a self-insured health plan is determined based on the number of lives covered by the policy or plan. In each year (2014, 2015 and 2016), insurance companies and sponsors are to report to HHS the number of covered lives by November 15 (the guidance contains several methods for determining this number). HHS is then expected to notify the sponsor or insurer of its TRP fee within 30 days. The fee will then be due 30 days thereafter (i.e., the fee for 2014 will be payable in late December 2014 or early January 2015).

While the guidance related to the TRP fee is not yet final, it is recommended that sponsors and insurers keep both the TRP fee and the PCORI fee in mind when budgeting for health care costs.

The final regulations regarding the PCORI fee can be found here.

The proposed regulations regarding the TRP fee can be found here.