IRS Proposed Rules to Cover PPACA Research Fees

The Patient Centered Outcomes Research Institute (PCORI), a nonprofit corporation newly required by the Patient Protection and Affordable Care Act (PPACA), is being established to advance comparative clinical effectiveness research. Intended to assist patients, clinicians, purchasers, and others in making informed health decisions, PCORI will be funded in part by fees paid by issuers of certain health insurance policies and sponsors of self-insured health plans. Recently, the Internal Revenue Service (IRS) Dept. of Treasury issued proposed rules addressing the following…

Calculation of the Fee
The fee will be imposed for seven years (i.e. policy/plan years ending on or after October 1, 2012 and before October 1, 2019). The amount of the fee is equal to:

               Average Number of Lives Covered[1]   x   Applicable Dollar Amount

The applicable dollar amount is $1 for years ending on or after October 1, 2012 and before October 1, 2013 (Jan. 1, 2013–Dec. 31, 2013 for calendar year plans), but increases to $2 for years ending on or after October 1, 2013 and before October 1, 2014 (Jan. 1, 2014–Dec. 31, 2014 for calendar year plans). In the case of policies/plans beginning on or after October 1, 2014, the applicable dollar amount is to be adjusted to reflect projected increases in national health expenditures.   

Policies and Plans Subject to the Fee
The regulations define a health insurance policy—that is subject to the fee—as any health insurance policy (including under a group health plan) issued with respect to U.S.residents. The fees paid by self-insured health plan sponsors apply to plans established or maintained by an employer or employee organization that provides health coverage, as long as any portion of that coverage is not provided through an insurance policy.  NOTE: Health insurance policies/self-insured health plans that are not subject to the fee include any policy or plan in which essentially all coverage consists of excepted benefits (i.e. limited-scope dental or vision plans).

Benefit Accounts
The proposed rules do not exclude all such plans from the definition(s). However, if two or more arrangements have the same plan year and are established or maintained by the same plan sponsor, the arrangements may be treated as a single self-insured health plan. For example, if a plan sponsor maintains a HRA in addition to major medical coverage, the HRA and medical plan may be treated as one.

The regulations provide that a health FSA is excluded from the definition of an “applicable self-insured health plan” and therefore is not subject to the fee. They further clarify that Archer medical savings accounts and health savings accounts (HSAs) are not subject to the fees, but—unlike other PPACA provisions—that the fees may be imposed on retiree-only medical plans, even those with fewer than two active participants.

Payment of the Fee
Although excise taxes are generally reported and paid quarterly, the proposed rules state that issuers and plan sponsors may report and pay the PCORI fees once per year, on July 31.

The regulations provide detailed instructions regarding how to identify the plan sponsor of a self-insured health plan. In the case of a plan established or maintained by a single employer, the plan sponsor is the employer. If a plan is maintained by two or more employers, the plan sponsor is the employer identified as such in the plan’s documents (i.e. the Plan Document or Summary Plan Description). If no designation has been made, then each plan sponsor that maintains the plan is responsible for the portion of the fee that is attributable to said employer’s own employees.

PPACA requires that the issuer of the policy pay the fee for fully insured health coverage (including a fully insured group health plan), and that the plan sponsor pay the fee in the case of a self-funded health plan. Although a TPA (like TASC) may agree to assist in calculating and/or remitting the payment, the responsibility ultimately rests with the issuer or plan sponsor.

While the PCORI fee is unlikely to drive plan design, it is one more factor that deserves a closer look. It may be most significant with respect to HRAs, since failing to adequately integrate one of these account-based plans with major medical coverage can result in effectively doubling the amount of the fee.

Further analysis will be provided during our next Capital Connection webinar on Tuesday, May 22.

[1] The average number of covered lives includes all participants and beneficiaries [i.e. covered employees (regardless of whether full- or part-time), covered retirees, covered spouses and covered dependents]. For health FSA and HRA coverage, each participant may be treated as a single life, regardless of how many other individuals (e.g., spouse, dependents, and other beneficiaries) are actually covered.

Feds “Punt” Essential Benefits to States

Definition is among the most important steps in PPACA implementation

The Obama administration is in the process of rolling out the health benefits framework for millions of Americans, and has established that states get to decide the specifics. This recent announcement is the first formal indication of the route the Dept. of Health & Human Services (HHS) will take on the “essential benefits package.”

The Patient Protection & Affordable Care Act (PPACA) aimed to provide the American people with access to quality, affordable health insurance. To achieve this goal, the law ensures that health plans offered in the individual/small group markets, both in and outside of the Exchanges, offer a comprehensive package of items and services known as “essential health benefits” beginning in 2014. This package must include items and services within at least the following 10 categories:

  • Ambulatory
  • Emergency
  • Hospitalization
  • Maternity & newborn care
  • Mental health & substance abuse
  • Prescription drugs
  • Rehabilitative
  • Laboratory
  • Preventive & wellness
  • Pediatric

Many states already set minimum standards in regulating insurers. Idaho, for instance, mandates insurers to cover 13 types of health services, while Rhode Island requires coverage of 69.

Under the HHS intended approach, states would have the flexibility to select a benchmark plan that reflects the scope of services offered by a “typical employer plan.” This approach would allow states flexibility when selecting plans to best meet the needs of their citizens.

States would choose one of the following benchmark insurance plans:

  1. One of the three largest (by enrollment) small group plans in the state;
  2. One of the three largest (by enrollment) state employee health plans;
  3. One of the three largest (by enrollment) federal employee health plans; OR
  4. The largest (by enrollment) HMO plan offered in the state’s commercial market.

Ultimately, the benefits and services included in the elected plan would be the essential health benefits package for that particular state. Plans could modify coverage within a benefit category, but only if doing so would not reduce the value of coverage. If a state opts not to choose a benchmark, HHS will then set Option #1 (above) as the default.

PPACA distinguishes between a health plan’s covered services and the plan’s cost-sharing features, such as deductibles, copayments and coinsurance. Those cost sharing features will be addressed by separate rules (presented in future bulletins), and will determine the actuarial value of the plan (i.e. bronze-level = 60%, silver-level = 70%, gold-level = 80% and platinum = 90%). Although final regulations are still months away, we in the TASC Governmental Affairs shop are watching closely. We know the federal government’s decision is likely to set the new national standard for health insurance.

NOTE – Grandfathered plans, self-insured group health plans, and health insurance coverage offered in the large group market are not required to offer essential health benefits. Nevertheless, the definition of said “essential health benefits” is of concern to employers, advisors, and insurers, since—beginning in 2017—states may allow large employers to obtain coverage through an Exchange and, thus, will be obliged to provide the essential benefits package.

This process could be especially burdensome to multi-state plans, since these would be exposed to 50 different essential health benefits definitions. In addition, while ERISA usually preempts state law with respect to self-funded plans, this is a federal mandate, so ERISA’s preemption provisions may not apply.

Much more than a “summary”

PPACA’s uniform explanation of benefits and coverage delayed

While employers had been mandated to comply early next year with proposed Summary of Benefits and Coverage (SBC) rules, a recent Frequently Asked Questions (FAQ) document related to the Patient Protection & Affordable Care Act (PPACA) has rescinded the interim requirement. Indeed, the Departments of Health & Human Services, Labor, and the Treasury (the Departments) have been inundated with comments on the interim regulations, Consequently, their “final” guidance will intend to incorporate that stakeholder feedback, and many expect to see a reasonable effective date that will allow group health plans and health insurance issuers sufficient time to implement…think 2013.

Previously, the Departments and other federal agencies involved had stated that the SBC requirements were to apply “beginning March 23, 2012.”


As currently constituted, the SBC requires individual and group health plans alike to provide a uniform explanation of benefits and coverage to all applicants and enrollees. The intent is twofold: to help consumers compare health insurance coverage options before they enroll, and to facilitate their understanding of coverage after they enroll. The provision applies to all self-insured and fully-insured health plans, regardless of whether they are “grandfathered.”

As mandated, the SBC document must not exceed four double-sided pages, must use only words that are understandable to the average consumer, and must be presented in a culturally and linguistically appropriate manner (i.e. it cannot contain “fine print”). Its content must detail the plan’s premium, coverage features such as exclusions/limits, patient cost-sharing for each essential benefits category, and rules regarding the use of network providers. Finally, the SBC should indicate whether the plan meets standards for minimum coverage. 

AND IN CASE YOU MISSED IT: On Tuesday, December 20, the Supreme Court announced plans to hear oral arguments related to President Obama’s healthcare law. To occur over a three-day span in late March 2012, this pronouncement further confirms expectation that the high court will issue a ruling during the height of the battle for the White House. (Schedule below.)

Monday, March 26: Anti-Injunction Act, 1 hour allotted
Tuesday, March 27: Individual Mandate, 2 hours allotted
Wednesday, March 28: Severability/Medicaid, 2 hours allotted

The Supreme Court’s 2011-12 Term is Now in Session

Is PPACA on the docket?

In a move that many will read as a sign of confidence, the Obama administration chose not to ask a federal appeals court for further review of a ruling striking down the centerpiece of the president’s sweeping healthcare overhaul—the mandate that individuals must purchase health insurance if they have none. The decision makes it more likely that the U.S. Supreme Court will hear the case during the court’s current term, and will render its verdict on the law in the midst of the 2012 presidential campaign.

In an August ruling, a divided three-judge panel of the Atlanta-based 11th Circuit Court of Appeals concluded that Congress overstepped its authority when it passed the individual mandate provision that requires individuals to purchase health insurance. The suit at the center of the controversy–Florida v. HHS–was brought forth by 26 states and the National Federation of Independent Businesses.

The Supreme Court has great discretion regarding when and how to accept a case, so the real question now is timing, which has political as well as legal ramifications. Under the court’s normal procedures, it must accept a case by January in order to render a decision by the traditional conclusion of the term at the end of June. Meanwhile, the key ingredients for making a case worthy of the court’s prompt attention appear to be present.

Even if the justices hear the healthcare reform case this term, it doesn’t necessarily follow that they will rule on whether it’s constitutional or not. The high court will have a full menu of options at their disposal when resolving this case; a majority could uphold the law, strike down the mandate, void other parts of the measure, and so on. 

As an alternative, the justices could adopt the approach recently taken by one of the appeals courts, and may conclude that the law shouldn’t be reviewed until the first penalties are assessed. This “out,” called the Anti-Injunction Act (AIA), would require Americans to pay a tax before allowed to challenge the mandate in court. Such a tax could be a major factor in the pending legal challenge surrounding the individual mandate, since people without healthcare coverage would have to pay a penalty. Either way, the mandate doesn’t go into effect until 2014; if the court determines that the AIA applies, no final verdict on the issue would be expected until approximately 2017.

Ultimately, the provision’s fate before the nine-member court (which is closely divided between a conservative majority and four liberals) could come down to two Republican appointees–Chief Justice John Roberts and Justice Anthony Kennedy.

NOTE:  Shortly after the Dept. of Justice asked the Supreme Court to take up the healthcare reform lawsuit brought by 26 states (above), Virginia Attorney General Ken Cuccinelli asked the court to reverse a previous ruling, to decide whether his state can challenge the federal healthcare reform law as well. Virginia’s suit is based on a state law that allows residents to forego health insurance. A handful of other states have passed or are considering passing similar legislation.

HRAs “Waive” Goodbye to Annual Limits

This post details recent Dept. of Health & Human Services (HHS) guidance on the annual limit requirement/waiver process and its effect on Health Reimbursement Arrangements (HRAs).


One provision of the Patient Protection and Affordable Care Act (PPACA), which went into effect back in September of 2010, prohibits health plans from imposing annual “caps” on the reimbursement of essential health benefits.[1]  The interim final regulation provides that for plan years beginning before 2014, a group health plan may impose a restricted annual limit on essential health benefits, but only if the annual limit is at least one of the following:

  • $750,000 annual limit for plan years beginning on/after Sept. 2010 but before Sept. 1, 2011;
  • $1.25M annual limit for plan years beginning on/after Sept. 2011 but before Sept. 1, 2012; and
  • $2M annual limit for plan years beginning on/after Sept. 23, 2012 but before Jan. 1, 2014.

Effect on HRAs

In the same interim final regulation, certain categories of HRAs were declared automatically exempt from the annual limit requirement.

  • Integrated HRAs– those that are “integrated” with, or tied to, a high deductible health plan or other health insurance coverage. (Status = EXEMPT)
  • Retiree HRAs– those that reimburse only those expenses incurred after the participant’s employment has ended.  (Status = EXEMPT)
  • Limited Scope HRAs– those that reimburse dental and/or vision expenses only.  (Status = EXEMPT)
  • Stand-Alone HRAs – per HHS guidance issued in late August 2011, HRAs in existence prior to Sept. 23, 2010 are exempt from the requirement to individually apply for a waiver or extension (see below) for plan years beginning before 2014.

Waiver Applications

Established health plans with annual caps were permitted to apply for a waiver from the provision. If granted, the waiver would allow a plan’s current cap to remain in effect until the plan removes the limit or until 2014, whichever comes first. At last check, 491 HRA waivers had been granted (out of a total of 1,472 waivers requested). 

In anticipation that they would be inundated with waiver requests, HHS set a firm deadline of September 22nd… This means applications are no longer being considered. 

What does this mean for HRAs established since Sept. 23, 2010?

While it appears that they are not covered by this new HRA exemption, these plans may or may not have been eligible to apply for an annual limit waiver under the HHS program that expired September 22. In sum, this effectively means that these restrictions will apply to future new HRAs unless said HRAs are otherwise exempt from the PPACA annual limit restrictions (e.g., exempted because the HRA is integrated with other health coverage, provides “retiree-only” coverage, etc.).

If employers are forced to raise their annual limits to the recommended amounts, they may be compelled to drop or dramatically reduce the benefits they provide. The employer benefits provided by TASC (in the HRA) go beyond any health insurance offerings, and we hold firm in our belief that these plans fit within the spirit and intent of the “Integrated HRA” exception/exemption. Recent healthcare regulations mandated by PPACA already pose significant challenges to small business owners, including the management of medical reimbursement plans, adherence to new regulations and strict deadlines, and so on.  Meanwhile, this requirement may single-handedly reduce access to these benefits and negatively affect the individuals covered. 

[1] Essential health benefits that are subject to the restriction on annual limits include the following: ambulatory, emergency, hospitalization, laboratory, maternity/newborn care, mental health/substance abuse, pediatric, preventative/wellness services, and rehabilitative care.

Exchange Roadmap Unveiled

The Department of Health and Human Services (HHS) recently rolled out the initial regulations regarding the establishment of State Health Insurance Exchanges1 under the Patient Protection & Affordable Care Act (PPACA). At first glance, these mandates – which are being issued in several phases – appear to grant states a great deal of flexibility…BUT, they also raise a host of complex questions that probably won’t be answered until sometime next year. 

In general, the rules establish the requirements that an Exchange must satisfy in order to be approved, the minimum requirements that health insurers must satisfy in order to participate in an Exchange, and the eligibility small employers must meet if they wish to participate in the Small Business Health Options Program (SHOP). Notable guidance includes the following:

Approval DeadlineJanuary 1, 2013 is the deadline for an Exchange to be approved by HHS as demonstrating “operational readiness.” If a state elects not to establish an Exchange or has not been approved by that date, HHS will intervene and establish the Exchange in that particular state. Meanwhile, HHS may grant a “conditional” certification to a state that is unable to meet the initial / original deadline, but making progress toward being fully operational by 2014.

Structure & Governing Board – States may opt to establish the Exchange as part of an existing state agency/office, as an independent public agency or as a non-profit entity. The governing board should favor individuals who support the interests of consumers, and cannot have a majority of voting representatives with a “conflict of interest”…including health insurance issuers, agents, brokers, etc.

Regional/Subsidiary Exchanges – States can participate in a Regional Exchange spanning two or more states (regardless of whether they are contiguous), as long as HHS approval is granted. Additionally, a state may instead establish one or more Subsidiary Exchanges, which would serve distinct geographic areas. 

General Functions – At a minimum, an Exchange must perform certain requirements, including issuing exemption certificates; performing eligibility determinations; establishing an appeals process; and providing both oversight and financial integrity functions. The proposal also provides instructions regarding the role of “Navigators.”2

SHOP Exchange – Each state would also be required to establish insurance options for qualifying small businesses through a SHOP, although participation by small employers is voluntary. A SHOP is intended to ensure that small employers have the same purchasing power as large employers, and to allow them to offer employees a choice of plans. Certain small employers participating in a SHOP will be eligible to receive a small business tax credit for contributions they make toward employees’ premiums.

Needless to say, the proposed regulations cover a lot of ground – AND A LOT OF PAGES! TASC is now in the process of analyzing a second set of instructions that lay out how these new marketplaces will deal with enrollment, provide subsidies for low to middle income American and interact with the Medicaid program. More to come…    

1 Exchanges are state-based competitive health insurance marketplaces through which individuals and small businesses (with fewer than 100 employees) can purchase private health insurance.   

2 Navigators: the public / private entities expected to assist individuals / small businesses find coverage for insurance, conduct outreach and provide education about the Exchanges. They must have knowledge of the market, but cannot receive compensation from an insurer for enrolling eligible candidates in a Qualified Health Plan (QHP).

Strike Two – 11th Circuit PPACA Ruling: Unconstitutional

The recent Court of Appeals ruling on the Patient Protection & Affordable Care Act (PPACA) all but ensures that the U.S. Supreme Court will be the ultimate arbiter of the law’s constitutionality.

A three judge panel of the court, based in Atlanta, found that Congress exceeded its authority when it mandated that all Americans purchase individual health insurance starting in 2014 or face a penalty… The court’s rejection affirmed a portion of District Judge Roger Vinson’s decision in the lawsuit brought by 26 governors and attorneys general (Florida v. HHS). The court did, however, find the individual mandate to be severable from the rest of the law – declaring that the remaining provisions are “legally operative.” Vinson had originally concluded that the mandate was integral to the rest of the legislation, and therefore had invalidated the entire act.

The 2-1 opinion was written by Judges Joel Dubina (a George H.W. Bush appointee) and Frank Hull (a Clinton appointee). Not only does it mark the first time that a judge appointed by a Democrat has voted to strike down the mandate, but last week’s decision is in direct conflict with a Cincinnati appellate court, which upheld the controversial measure back in June. Meanwhile, a third federal appeals panel – the 4th Circuit Court of Appeals (Richmond, VA) – has yet to rule on a separate challenge brought by the state of Virginia.

The federal government now has 90 days to ask for a full 11th Circuit review of the three-judge ruling or it could choose a direct appeal to the high court. Many see it likely that the Supreme Court will take up the healthcare law during its upcoming fall term that begins in October, with a ruling possible by the summer of 2012 (pre-presidential election).

This is what we’ve all been waiting for!