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Health Care Reform Part 5

By Curt Brand — Ryun, Givens & Company Partner

Today is our fifth installment on issues covering health care reform legislation and related tax changes. We are going to examine the new fee on health plans, which was established by the Patient Protection and Affordable Care Act, also known as PPACA. This fee is called the PCORI fee. Due to the length of information, we are not including a video portion this week.

The Patient-Centered Outcomes Research Institute was established under PPACA to assist patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing comparative clinical effectiveness research. It’s funded in part by fees paid by issuers of health insurance policies and sponsors of self-insured health plans, which makes up the PCORI fee.

For each policy year ending after September 30, 2012, each specified health insurance policy and each applicable self-insured health plan will have to pay a fee equal to the product of $2 ($1 for policy years ending during 2013) multiplied by the average number of lives covered under the policy. The issuer of the health insurance policy or the self-insured health plan sponsor is liable for and must pay the fee.

Specifically, Code Sec. 4375 imposes those fees on, “specified health insurance policies.” That’s generally, any accident or health insurance policy, including a policy under a group health plan, issued with respect to individuals residing in the U.S.

Code Sec. 4376 imposes those fees on, “applicable self-insured health plans.” That’s mainly, any employer or employee organization sponsored plan for providing accident or health coverage other than through an insurance policy. The fees, which are based on the average number of lives covered under the policy or plan, are effective for policy and plan years ending after Sept. 30, 2012, and before Oct. 1, 2019.

The deadline to report and pay these amounts is July 31st, 2013. This applies to issuers of health insurance policies and sponsors of self-insured health plans with a Code Sec. 4375 or Code Sec. 4376 liability for a plan year that ended after Sept. 30, 2012 and before Jan. 1, 2013.

The PCORI fee doesn't apply to:

  • Exempt governmental programs, including Medicare, Medicaid, Children's Health Insurance Program, and any program established by federal law for providing medical care (other than through insurance policies) to members of the armed forces, veterans, and members of Indian tribes

  • Health insurance policies and self-insured plans that provide only accepted benefits, such as vision or dental, and most flexible spending arrangements (FSAs)

  • Health insurance policies or self-insured plans that are limited to employee assistance programs, disease management programs, or wellness programs that don't provide significant benefits in the nature of medical care or treatment

  • Policies and plans that are designed specifically to cover employees who are working and residing outside the U.S.

However, health insurance policies or self-insured plans for tax-exempt organizations and governmental entities are subject to the fee.

Disclaimer: The items included in the Tax Tip Tuesday Video Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advise contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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