The Affordable Care Act health care reform law requires plan sponsors of self-insured plans, including self-insured plans that cover retirees, to pay fees to support medical research for seven years, beginning with plan years ending on or after Oct. 1, 2012.
Key: Sponsors of insured plans who offer employees health reimbursement arrangements (HRAs) and certain health flexible spending accounts (FSAs) must also pay the fees.
Caution: The IRS has yet to determine whether plan assets can be used to pay the fees. Proposed regulations implement this provision of the law. You may rely on these proposed regs until final regs are issued. (77 F.R. 22691, 4-17-12)
A buck for research
The fee is:
- $1 per average number of covered lives for plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2013
- $2 for plan years ending on or after Oct. 1, 2013, and before Oct. 1, 2014.
After that, the fee is inflation-adjusted.
Break: For plan years beginning before July 11, 2012, and ending on or after Oct. 1, 2012, you may determine the average number of covered lives using any reasonable method. The fees are payable annually on July 31 following the end of the plan year, along with Form 720.
You have four choices for determining the average number of covered lives. You must use the same method to determine the number of covered lives for a plan year, but you can use another method for the next plan year.
• The actual count method: Add the total number of covered lives for each day of the plan year and divide by the number of days in the plan year.
• Two snapshot methods: Pick a date (say, the first day of each calendar quarter), add the total covered lives on that date, and divide by the number of dates on which the count is made. For the snapshot factor method, the number of lives is the total number of participants who have self-only coverage, and those who have family coverage multiplied by 2.35. For the snapshot count method, count the actual number of lives on the designated date.
• The Form 5500 method: Count the number of participants whom you report on Form 5500. For plans offering only self-only coverage, this figure is the number of participants at the beginning and end of the plan year, divided by two. For plans that offer self-only and family coverage, this figure is the sum of the total number of participants at the beginning and end of the plan year.
Fees aren’t due on excepted benefits. What are they: Excepted benefits are the same benefits that are excluded from W-2 reporting. They include employee assistance plans, diseaseprograms and wellness programs, as long as they don’t provide significant medical care or treatment; limited scope dental and vision plans; and specific disease or hospital/fixed indemnity plans that employees pay for with after-tax dollars and that are offered as independent, noncoordinated benefits.
FSAs and HRAs
FSAs can be offered to employees in conjunction with a self-insured or an insured plan. Regardless of how the health plan is funded, FSAs aren’t subject to the fees if they are excepted benefits—employees are offered other major medical coverage and the maximum FSA payout is limited to twice employees’ pretax contributions, or, if greater, $500 plus employees’ pretax contributions.
FSAs that aren’t considered excepted benefits, including FSAs offered by sponsors with insured plans, and all HRAs are subject to the fees. Break: Self-insured plans don’t have to pay separate fees for FSAs and HRAs that have the same plan sponsor and the same plan year as the self-insured plan, and that are integrated into major medical coverage. Special counting rule: If you must pay fees, you may treat each participant’s FSA or HRA as covering only one life.
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