IRS Releases Proposed Regulations on Comparative Effectiveness Research Fees

By Larry Grudzien, J.D.
September 2012 – On April 13, 2012, the Internal Revenue Service released proposed regulations that provide that the first potential date to pay the new comparative effectiveness research fees that apply to insured and self-insured health coverage for plan years ending on or after Oct. 1, 2012 will be July 31, 2013.

In the proposed regulations, the IRS also provides:

•    These fees apply to insured and self-funded group health plans for active or former employees, as well as some health reimbursement arrangements and health flexible spending arrangements. These fees do not apply to plans that provide “excepted benefits.” Excepted benefits include such benefits as stand-alone dental or vision plans; employee assistance, wellness and disease management programs that don’t offer “significant benefits in the nature of medical care or treatment”; most expatriate plans; and stop-loss insurance. Retiree-only plans, however, are not exempt from these fees.

•    These fees will be paid by insured and self-insured plans. While insurers will file reports and pay the fees for insured policies, self-insured plan sponsors must do file reports and pay these fees.  They cannot delegate this work to third parties or vendors. Plan sponsors and insurers will file IRS Form 720 to report the fees and make annual payments. The form has yet to be updated to reflect the comparative effectiveness fees.  This return must be filed each year by July 31 of the calendar year immediately following the last day of the policy year (for insured plans) or the plan year (for self-insured plans)..  If a plan or policy year ends on December 31, 2012, Form 720 must be filed by July 31, 2013.  If the plan or policy year ends on January 31, 2013, Form 720 must be filed by July 31, 2014.

•    These fees will be calculated as the average number of covered lives under a policy or plan multiplied by $1 for plan years ending after October 1, 2012. The multiplier increases to $2 for the next plan year, then may rise with health care inflation through plan years ending before Oct. 1, 2019, when the fees are slated to end. To determine the average number of covered lives, plan sponsors generally can use any reasonable method in the first plan year and will choose from several proposed approaches in later years.

•    These fees will fund an institute set up by the health care reform law to perform and promote research on the effectiveness and outcomes of various medical treatments, services, procedures and drugs. This comparative effectiveness research aims to broaden patient, clinician, payer and other access to evidence-based medical information.

To view a copy of the proposed regulations, please click on the link below:
http://www.ofr.gov/(S(4baaog3fssmhvg1ooppcvu50))/OFRUpload/OFRData/2012-09173_PI.pdf

Larry Grudzien is an attorney practicing exclusively in the field of employee benefits. He has experience in dealing with qualified plans, health and welfare, fringe benefits and executive compensation areas. He has more than 35 years of experience in employee benefit law and is an adjunct  faculty member of John Marshall Law School’s LL.M. program in employee benefits and at the Valparaiso University School of Law, where he teaches a number of courses.