The Affordable Care Act (ACA) established the Patient-Centered Outcomes Research Institute and charged it with synthesizing and disseminating comparative clinical effectiveness research findings to help patients, clinicians, purchasers, and policymakers make informed health decisions. To fund this Institute, the ACA requires health insurers and self-funded group health plan sponsors to pay a fee for each policy or plan year that ends on or after October 1, 2012, and before October 1, 2019.

On April 17, 2012, the Internal Revenue Service issued proposed regulations that provide guidance on several aspects of the new fees that are relevant to plan sponsors.


In general, the applicable insurer will be responsible for paying the fees for an insured plan, and an employer will be responsible for the fees for a self-funded plan. The regulations provide rules for determining who will be responsible when more than one employer (including related employers) sponsor a plan.

Plans Subject to the Fees

The proposed regulations provide that the rules apply to group health plans, including HMOs and retiree-only health plans, with specific exceptions for:

  • Certain excepted benefits, including accident and disability benefits, workers’ compensation, on-site medical clinics, limited scope vision or dental benefits, long-term care benefits, and most health flexible spending accounts
  • Health savings accounts
  • Employee assistance, disease management, and wellness programs that do not provide significant benefits in the nature of medical care or treatment
  • Expatriate plans primarily designed to cover individuals who work and reside outside of the United States (Individuals who do not reside in the United States are excepted from the fee calculation, irrespective of whether coverage is provided under such an expatriate plan.)
  • Stop-loss coverage

The sponsor of multiple self-funded group health plans with the same plan year needs to pay only one fee for such plans. Thus, an employer with a medical plan and a separate prescription drug plan, health FSA, or HRA (with the same plan year) will not need to pay multiple fees for the same individual.

Calculation of Fees

The fee equals $2 ($1 in the case of the first plan year) multiplied by the average number of covered lives under a policy or plan. Self-funded plan sponsors are provided three alternative methods for determining the average number of lives covered under the plan for the plan year. They may:

  • Actually count the number of covered individuals each day and divide the total by the number of days in the year;
  • Take a snapshot approach that uses information from particular days each quarter to develop the average; or
  • Use data from Form 5500 to develop the average.

Because the first plan year subject to these rules may have already started, the rules give latitude to self-funded plans (with plan years beginning before July 11, 2012) to use any reasonable method for determining the average number of covered lives for the first plan year.

Insurers may use similar methods for making the determination based on the applicable policy year, but the Form 5500 approach is replaced by a method based on the information included in the National Association of Insurance Commissioners Supplemental Health Care Exhibit or other applicable state form.

A plan sponsor must use the same method of calculation throughout a plan year, but may change methods from one plan year to the next.

Reporting and Collection

The annual fees are due July 31 of the year following the year of assessment. Thus, the first payments and reports must be submitted by July 31, 2013. Information regarding the fees must be reported on Form 720, which may be submitted electronically.

As the federal health care reform effort gained steam, Ballard Spahr attorneys launched the Health Care Reform Initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting health care entities and employers in understanding the relevant changes and planning for the future. If you have questions regarding the contents of this legal alert or the proposed regulations on the payment of fees to fund the Institute, contact Edward I. Leeds at 215.864.8419 or, or Jonathan M. Calpas at 215.864.8385 or