[Federal Register Volume 77, Number 235 (Thursday, December 6, 2012)]
[Rules and Regulations]
[Pages 72721-72736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-29325]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 40, 46, and 602
[TD 9602]
RIN 1545-BK59
Fees on Health Insurance Policies and Self-Insured Plans for the
Patient-Centered Outcomes Research Trust Fund
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations that implement and
provide guidance on the fees imposed by the Patient Protection and
Affordable Care Act on issuers of certain health insurance policies and
plan sponsors of certain self-insured health plans to fund the Patient-
Centered Outcomes Research Trust Fund. These final regulations affect
the issuers and plan sponsors that are directed to pay those fees.
DATES: Effective Date: These regulations are effective December 6,
2012.
Applicability Dates: These regulations apply to policy and plan
years ending on or after October 1, 2012, and before October 1, 2019.
FOR FURTHER INFORMATION CONTACT: R. Lisa Mojiri-Azad at (202) 622-6080
(regarding self-insured health arrangements) or Rebecca L. Baxter at
(202) 622-3970 (regarding health insurance policies).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)) under control number 1545-2238. The collections of information
in these final regulations are in Sec. 46.4375-1(c)(2)(iv) (use of the
snapshot method to calculate the fee under section 4375); Sec.
46.4375-1(c)(2)(v) (use of the National Association of Insurance
Commissioners (NAIC) Supplemental Health Care Exhibit to calculate the
fee under section 4375); Sec. 46.4375-1(c)(2)(vi) (use of certain
state forms to calculate the fee under section 4375); Sec. 46.4376-
1(b)(2)(G) (identification or designation of a plan sponsor under the
governing plan document for certain applicable self-insured health
plans); Sec. 46.4376-1(c)(2)(iv) (use of snapshot method to calculate
the fee under section 4376); and Sec. 46.4376-1(c)(2)(v) (use of the
[[Page 72722]]
Form 5500, ``Annual Return/Report of Employee Benefit Plan,'' or Form
5500-SF, ``Short Form Annual Return/Report of Employee Benefit Plan''
to calculate the fee under section 4376).
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains final amendments to 26 CFR part 40 (Excise
Tax Procedural Regulations) and 26 CFR part 46 (relating to excise
taxes imposed on policies issued by foreign insurers and obligations
not in registered form) to implement the requirements under sections
4375 through 4377 of the Internal Revenue Code (Code). The Treasury
Department and the IRS issued proposed regulations under sections 4375
through 4377 on April 17, 2012 (77 FR 22,691). Sections 4375 and 4376
of the Code impose fees on issuers of specified health insurance
policies and plan sponsors of applicable self-insured health plans, and
section 4377 contains special rules that apply to these issuers and
plan sponsors with respect to these fees. Sections 4375, 4376, and 4377
were added to the Code by section 6301 of the Patient Protection and
Affordable Care Act (Affordable Care Act), Public Law 111-148 (124
Stat. 119 (2010)).
The Affordable Care Act provides for the establishment of the
private, nonprofit corporation, the Patient-Centered Outcomes Research
Institute (the ``Institute''). Through research, the Institute will
assist patients, clinicians, purchasers, and policy-makers in making
informed health decisions by advancing the quality and relevance of
evidence-based medicine through the synthesis and dissemination of
comparative clinical effectiveness research findings. The statute
specifically prohibits the Secretary of Health and Human Services (HHS)
from using the evidence or findings of the research conducted in
determining coverage, reimbursement, or incentive programs unless it is
through an iterative and transparent process which includes public
comment and considers the effect on subpopulations. Nothing under this
provision allows the Secretary of HHS to deny coverage of items or
services solely on the basis of comparative clinical effectiveness
research. The statute provides that the Institute will not develop a
dollars-per-quality-life-year estimate as a threshold to establish
effective or recommended care.
Section 6301 of the Affordable Care Act amended the Code by adding
new section 9511 to establish the Patient-Centered Outcomes Research
Trust Fund (the ``Trust Fund''), which is the funding source for the
Institute. Section 6301 of the Affordable Care Act also added new Code
sections 4375, 4376, and 4377 to provide a funding source for the Trust
Fund that is to be financed, in part, by fees to be paid by issuers of
specified health insurance policies and sponsors of applicable self-
insured health plans.
Statutory Provisions
Section 4375 imposes a fee on an issuer of a specified health
insurance policy for each policy year ending on or after October 1,
2012, and before October 1, 2019. Under section 4375(a), the fee is two
dollars (one dollar in the case of policy years ending before October
1, 2013) multiplied by the average number of lives covered under the
policy. Under section 4375(d), for policy years ending on or after
October 1, 2014, the fee is increased based on increases in the
projected per capita amount of National Health Expenditures. Section
4375(b) provides that the fee imposed by section 4375(a) shall be paid
by the issuer of the policy.
Section 4375(c) defines a specified health insurance policy as any
accident or health insurance policy (including a policy under a group
health plan) issued with respect to individuals residing in the United
States. Section 4375(c)(2) excludes from a specified health insurance
policy any insurance if substantially all of its coverage is of
excepted benefits described in section 9832(c). Section 4375(c)(3)
provides that a specified health insurance policy includes any prepaid
health coverage arrangement described in section 4375(c)(3)(B). An
arrangement is described in section 4375(c)(3)(B) if, under the
arrangement, fixed payments or premiums are received as consideration
for a person's agreement to provide or arrange for the provision of
accident or health coverage to residents of the United States,
regardless of how the coverage is provided or arranged to be provided.
Section 4376 imposes a fee on a plan sponsor of an applicable self-
insured health plan for each plan year ending on or after October 1,
2012, and before October 1, 2019.\1\ Under section 4376(a), the fee is
two dollars (one dollar for plan years ending before October 1, 2013)
multiplied by the average number of lives covered under the plan. Under
section 4376(d), for plan years ending on or after October 1, 2014, the
fee is increased based on increases in the projected per capita amount
of National Health Expenditures. Section 4376(b)(1) provides that the
fee imposed by section 4376(a) shall be paid by the plan sponsor.
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\1\ The Department of Labor has advised that, because the fee is
imposed on the plan sponsor under section 4376 (instead of the
plan), paying the PCORI fee generally does not constitute a
permissible expense of the plan for purposes of Title I of the
Employee Retirement Income Security Act (ERISA), although special
circumstances may exist in limited situations. The Department of
Labor will provide guidance in the near future on PCORI fee payments
under Title I of ERISA on its Web site, www.dol.gov/ebsa.
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Section 4376(b)(2) defines a plan sponsor as the employer in the
case of a plan established or maintained by a single employer, or the
employee organization in the case of a plan established or maintained
by an employee organization. Section 4376(b)(2) also provides that, in
the case of (1) a plan established or maintained by two or more
employers or jointly by one or more employers and one or more employee
organizations, (2) a multiple employer welfare arrangement, or (3) a
voluntary employees' beneficiary association described in section
501(c)(9), the plan sponsor is the association, committee, joint board
of trustees, or other similar group of representatives of the parties
who establish or maintain the plan. Section 4376(b)(2) further provides
that in the case of a plan established or maintained by a rural
electric cooperative (as defined in section 3(40)(B)(iv) of the
Employee Retirement Income Security Act of 1974 (ERISA)) or rural
telephone cooperative association (as defined in section 3(40)(B)(v) of
ERISA), the plan sponsor is the cooperative or association that
established or maintained the plan.
Section 4376(c) defines an applicable self-insured health plan as
any plan for providing accident or health coverage if any portion of
the coverage is provided other than through an insurance policy, and
the plan is established or maintained (1) By one or more employers for
the benefit of their employees or former employees, (2) by one or more
employee organizations for the benefit of their members or former
members, (3) jointly by one or more employers and one or more employee
organizations for the benefit of employees or former employees, (4) by
a voluntary employees' beneficiary
[[Page 72723]]
association described in section 501(c)(9), (5) by any organization
described in section 501(c)(6), or (6) if not previously described, by
a multiple employer welfare arrangement (as defined in section 3(40) of
ERISA), a rural electric cooperative (as defined in section
3(40)(B)(iv) of ERISA), or a rural telephone cooperative association
(as defined in section 3(40)(B)(v) of ERISA).
Section 4377 includes definitions and special rules that apply for
purposes of sections 4375 and 4376. Section 4377(a)(1) defines accident
and health coverage as any coverage that, if provided by an insurance
policy, would cause the policy to be a specified health insurance
policy (as defined in section 4375(c)).
Section 4377(b)(1)(B) provides that ``[n]otwithstanding any other
law or rule of law, governmental entities shall not be exempt from''
the fees imposed by sections 4375 and 4376 unless the policy or plan is
an exempt governmental program. Section 4377(b)(3) defines an exempt
governmental program as (1) any insurance program established under
title XVIII of the Social Security Act (42 U.S.C. 1395 et. seq.)
(Medicare), (2) the medical assistance program established by title XIX
(42 U.S.C. 1396 et. seq.) (Medicaid) or title XXI of the Social
Security Act (42 U.S.C. 1397aa et. seq.) (Children's Health Insurance
Program), (3) any program established by Federal law for providing
medical care (other than through insurance policies) to individuals (or
the spouses and dependents thereof) by reason of such individuals being
members of the Armed Forces of the United States or veterans, and (4)
any program established by Federal law for providing medical care
(other than through insurance policies) to members of Indian tribes (as
defined in section 4(d) of the Indian Health Care Improvement Act, 25
U.S.C. 1603). Under these special rules, a governmental entity
(including a federally recognized Indian tribal government) that is the
plan sponsor of an applicable self-insured health plan that does not
meet the definition of an exempt governmental program must pay the fee
imposed by section 4376.
Section 4377(c) provides that the fees imposed by sections 4375 and
4376 are treated as taxes for purposes of subtitle F of the Code
(sections 6001 through 7874 that set forth the rules of federal tax
procedure and administration).
Notice 2011-35 and Proposed Regulations
On June 8, 2011, the IRS released Notice 2011-35 (2011-25 IRB 879),
which requested comments on how the fees imposed under sections 4375
and 4376 (referred to collectively as the PCORI fee) should be
calculated and paid, including possible rules and safe harbors. The
Treasury Department and the IRS received numerous comments in response
to Notice 2011-35 and considered all comments in issuing proposed
regulations under sections 4375, 4376, and 4377 (77 FR 22,691). The
Treasury Department and the IRS received 26 written comments on the
proposed regulations. After consideration of the comments, these final
regulations adopt the provisions of the proposed regulations with
certain modifications, the most significant of which are highlighted in
the Summary of Comments and Explanation of Revisions. See Sec.
601.601(d)(2).
Summary of Comments and Explanation of Revisions
I. Health Insurance Policies Subject to the PCORI Fee
Section 4375(a) imposes a fee on an issuer of a specified health
insurance policy for each policy year ending on or after October 1,
2012, and before October 1, 2019. Section 46.4375-1(b)(1) of these
regulations defines a specified health insurance policy as any accident
and health insurance policy (including a policy under a group health
plan) issued with respect to individuals residing in the United States.
Section 46.4375-1(b)(1)(ii) provides exceptions to the term specified
health insurance policy. Section 4375(c)(2) and Sec. 46.4375-
1(b)(1)(ii)(A) provide an exclusion for any insurance if substantially
all of its coverage is of excepted benefits described in section
9832(c). While Sec. 46.4376-1(b)(ii)(B) excludes from the definition
of applicable self-insured health plan an employee assistance program
(EAP), disease management program, or wellness program, if the program
does not provide significant benefits in the nature of medical care or
treatment, no similar exclusion was included in the proposed
regulations for a specified health insurance policy.
One commentator explained that California and Nevada regulate EAPs
that provide for four or more counseling, treatment, or therapy visits
as insurance thereby requiring the issuance of an insurance policy. The
commentator argued that in any other state, identical EAPs would be
excluded from the definition of applicable self-insured plan and not
subject to the PCORI fee. In recognition of the unique California and
Nevada requirements that certain employee assistance plans be treated
as insurance, the commentator asked that an exception be added to the
definition of specified health insurance policy to exclude those EAPs.
In response to this comment, these final regulations provide that the
definition of a specified health insurance policy does not include any
insurance policy to the extent that the policy provides for an EAP,
disease management program, or wellness program, if the program does
not provide significant benefits in the nature of medical care or
treatment. No inference is intended whether the specific health
benefits cited by the commentator constitute insignificant benefits.
II. Retiree Coverage and Retiree-Only Plans
As noted in the preamble to the proposed regulations, sections 4375
and 4376 may apply to a retiree-only plan because, although group
health plans that have fewer than two participants who are current
employees (such as retiree-only plans) are excluded from the
requirements of chapter 100 (setting forth requirements applicable to
group health plans such as portability, nondiscrimination, and market
reform requirements), this exclusion does not apply to sections 4375
and 4376 because these sections are in chapter 34. In addition, section
4376(c)(2)(A) states explicitly that an applicable self-insured health
plan includes a plan established or maintained by one or more employers
for the benefit of their employees or former employees. Some
commentators requested that the final regulations exempt from the PCORI
fee retiree coverage on public policy grounds, but generally agreed
that a retiree-only insured plan or retiree coverage under an
applicable self-insured health plan may be subject to the PCORI fee.
Consistent with the statutory language, the final regulations apply the
PCORI fee to specified health insurance policies or applicable self-
insured health plans that provide accident and health coverage to
retirees, including retiree-only policies and plans.
III. COBRA Coverage
Commentators requested clarification of whether sections 4375 and
4376 apply to continuation coverage required under the Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA) or similar
continuation coverage under other federal law or under state law
(referred to collectively as ``continuation coverage'') and asked that
the final regulations explicitly exclude continuation coverage from
application of those sections. If the coverage provided under the
[[Page 72724]]
continuation coverage arrangement is accident and health coverage,
there is no basis to exclude the arrangement from the PCORI fee. The
requirements of sections 4375 and 4376 apply to specified health
insurance policies that provide accident and health coverage and plans
that are applicable self-insured health plans, regardless of whether
provided through the individual market, to an active employee as part
of a group health plan, or as continuation coverage to an active
employee, former employee, or otherwise qualifying beneficiary. In
response to comments, these final regulations state explicitly that
continuation coverage must be taken into account in determining the
PCORI fee, unless the arrangement is otherwise excluded.
IV. Lives Taken Into Account in Calculating the Fee
The fee imposed on an issuer of a specified health insurance policy
under section 4375 is based on the average number of lives covered
under the policy during the policy year. The fee imposed on a plan
sponsor of an applicable self-insured health plan under section 4376 is
based on the average number of lives covered under the plan during the
plan year.
Commentators acknowledged that separate fees are imposed by
sections 4375 and 4376, but argued that this only reflects
congressional intent for the PCORI fee to extend to both insured and
self-insured arrangements. Several commentators requested that the
final regulations provide that the PCORI fee does not apply multiple
times if accident and health coverage is provided to one individual
through more than one policy or self-insured arrangement (for example,
where an individual is covered by a fully-insured major medical
insurance policy and a self-insured prescription arrangement).
Commentators also requested that the final regulations clarify that the
issuer or plan sponsor is required to pay only once with respect to
each covered life under the specified health insurance policy or
applicable self-insured health plan.
The final regulations do not adopt the requested change that the
fee apply only once with respect to each covered life because it would
be contrary to the explicit statutory language applying the fee to each
specified health insurance policy or applicable self-insured health
plan. For example, for an employee covered by both a group insurance
policy and a health reimbursement arrangement (HRA), the group
insurance policy falls within the definition of a specified health
insurance policy to which section 4375 applies a fee, and the HRA falls
within the definition of an applicable self-insured health plan, to
which section 4376 applies a fee to the plan sponsor. Because there are
no allocation rules or other method of applying the fee on an
aggregated basis in the statute or legislative history, there is no
evidence that the statutory provisions were intended to be applied in a
manner that aggregated these separate arrangements for a single covered
individual and allocated the fee between them. However, in response to
comments, the final regulations permit an applicable self-insured
health plan that provides accident and health coverage through fully-
insured options and self-insured options to determine the fee imposed
by section 4376 by disregarding the lives that are covered solely under
the fully-insured options. (See also discussion under section V of this
preamble relating to the special rule for plan sponsors that establish
or maintain multiple self-insured arrangements with the same plan year
and section VI of this preamble relating to special rules for health
reimbursement arrangements and flexible spending arrangements). Except
as otherwise provided, the final regulations do not permit an issuer or
plan sponsor to disregard a covered life merely because that individual
is also covered under another specified health insurance policy or
applicable self-insurance plan.
V. Lives Covered Under Multiple Policies or Plans
Section 46.4376-1(b)(1)(iii) of the proposed regulations provided
that for purposes of section 4376, two or more arrangements established
or maintained by the same plan sponsor that provide for accident and
health coverage other than through an insurance policy and that have
the same plan year may be treated as a single applicable self-insured
health plan for purposes of calculating the fee imposed by section
4376.
A few commentators described self-insured arrangements that are
coordinated with an underlying health plan, including a plan of an
unrelated entity. Commentators pointed to collectively bargained
arrangements under which the union sponsors a prescription-only or
premium-only plan that is tied to an insured health plan of the
employers that have entered into a collective bargaining agreement
between the employee representatives and one or more employers. These
commentators requested that the final regulations include special rules
that exempt from the PCORI fee certain applicable self-insured health
plans that are established or maintained by a union because the lives
covered under the union plan are taken into account for the fee imposed
on the employer, if the employer's plan is also an applicable self-
insured health plan, or the issuer, if the employer's plan is an
insured plan. One commentator requested that the final regulations
permit collectively bargained plans to be aggregated with the
employer's plan, without regard to whether they have the same sponsor
or plan year, for purposes of determining the fee with respect to the
same lives covered.
One commentator pointed out that the Medical Loss Ratio (MLR)
Interim Final Rule issued by HHS allows affiliated issuers to report
their premiums and expenditures on an aggregate basis if one issuer
provides in-network coverage and the second provides out-of network
coverage for one group health plan. The commentator requested the same
approach provided in Sec. 46.4376-1(b)(1)(iii) (permitting two or more
applicable self-insured health plans with the same plan sponsor and
same plan year to be treated as a single applicable self-insured health
plan) be provided for group health plans that provide separate benefits
to a participant or beneficiary during the same plan year under two or
more insurance policies or through a self-insured plan and an insured
plan. Specifically, the commentator suggested that if insurance
policies covering the same individual qualify for aggregation under the
MLR rebate reporting rules, the IRS should allow issuers to aggregate
their policies for purposes of the PCORI fee.
Sections 4375 and 4376 specifically apply the PCORI fee to,
respectively, an issuer of a specified health insurance policy and to
the sponsor of an applicable self-insured health plan (subject to
certain exceptions). The commentators have shown no statutory basis for
combining arrangements involving different issuers or different plan
sponsors. The statute specifically contemplated that different
arrangements having different plan sponsors would be subject to
separate fees imposed by section 4376. See section 4376(b)(2) (naming
the different types of plan sponsors for different types of applicable
self-insured health plans). Commentators, however, point to the
proposed rule, adopted in these final regulations, permitting a plan
sponsor to treat two different applicable self-insured health plans
with the same plan year and plan sponsor as one plan as the basis for
adopting the suggested
[[Page 72725]]
change. There is no significant difference between that arrangement and
a single plan, or ``umbrella'' plan containing both self-insured
arrangements. In contrast, if the two arrangements are sponsored by two
different plan sponsors, there is no single plan equivalent.
Accordingly, this suggestion is not adopted in the final regulations.
VI. Health Reimbursement Arrangements (HRAs) and Flexible Spending
Arrangements (FSAs)
Section 46.4376-1(b)(1)(ii) of the proposed regulations defined an
applicable self-insured health plan to include HRAs (as described in
Notice 2002-45 (2002-2 CB 93)) and health flexible spending
arrangements (as described in section 106(c)(2)) (FSAs) that do not
satisfy the requirements to be treated as an excepted benefit (within
the meaning of section 9832(c) and Sec. 54.9831-1(c)(3)(v)). The
proposed regulations also provided additional rules that permitted the
plan sponsor to assume one covered life for each employee with an HRA
and for each employee with an FSA that is not an excepted benefit. The
final regulations retain these rules. See Sec. 601.601(d)(2).
Commentators requested that the definition of applicable self-
insured health plan be revised to exclude all HRAs, or alternatively
that the final regulations exclude from the definition HRAs that are
``integrated'' with coverage under a self-insured or fully-insured
arrangement. One commentator requested that the final regulations
exempt from the definition of applicable self-insured health plan
premium-only HRAs for Medicare-eligible retirees. As discussed in the
preamble to the proposed regulations, an HRA is not subject to a
separate fee under section 4376 if the plan sponsor also maintains a
separate applicable self-insured health plan with a calendar year
(referred to as the other plan). In such circumstances, the plan
sponsor is permitted to treat the HRA and other plan as a single
applicable self-insured health plan for purposes of section 4376 and
therefore determine and pay the PCORI fee once with respect to each
life covered under the HRA and other plan. Because the statutory
structure provides that the fee imposed by section 4375 is separate
from the fee imposed by section 4376, these regulations do not permit a
plan sponsor to treat the HRA and a fully-insured plan as a single plan
or arrangement for purposes of the PCORI fee, and these final
regulations include additional examples to clarify the application of
the PCORI fee to an HRA, including an HRA and other plan.
For the same reasons, the final regulations do not adopt the
request to provide that the PCORI fee does not apply to an employee's
FSA that does not meet the requirements for being an excepted benefit
if the employee is covered by a major medical plan.
VII. Determination of Whether an Individual Is Residing in the United
States
The term specified health insurance policy includes only an
accident and health insurance policy that is issued with respect to an
individual residing in the United States. The final regulations adopt
the rule in the proposed regulations that provides that if the address
on file with the issuer or plan sponsor for the primary insured is
outside of the United States, the issuer or plan sponsor may treat the
primary insured and the primary insured's spouse, dependents, or other
beneficiaries covered under the policy as having the same place of
abode and not residing in the United States. For this purpose, the term
primary insured refers to the individual covered by the policy whose
eligibility for coverage was not due to his or her status as a spouse,
dependent, or other beneficiary of another insured individual. Also as
provided in the proposed regulations, these final regulations clarify
that for purposes of the PCORI fee, ``an individual residing in the
United States'' means an individual who has a place of abode in the
United States.
Two commentators suggested that an issuer or plan sponsor should be
permitted to find that a primary insured who is on a temporary U.S.
visa does not have a place of abode in the United States. The
commentators argued that because many (if not most) health insurance
issuers offering expatriate plans request, for compliance purposes, an
overview of citizenship and visa status from an employee covered under
an employer-sponsored international plan, visa information and
citizenship information should be available to them and can be relied
upon in determining whether the employee's place of abode is the United
States or elsewhere.
The final regulations do not adopt this requested change. To
exclude covered individuals who are residing in the United States would
be contrary to Congressional intent that the PCORI fee applies to
policies and plans that cover individuals residing in the United
States. An individual on a temporary U.S. visa who has a place of abode
in the United States is residing in the United States. For purposes of
sections 4375, 4376, and 4377, the determination of place of abode is
based on the most recent address on file with the issuer or plan
sponsor.
VIII. Self-Insured Expatriate Plans
As in the proposed regulations, these final regulations provide
that the term specified health insurance policy does not include any
group policy issued to an employer if the facts and circumstances show
that the group policy was designed and issued specifically to cover
primarily employees who are working and residing outside of the United
States. One commentator requested clarification that similar self-
insured plans are also excepted for purposes of the fee under section
4376. The final regulations clarify that the term applicable self-
insured health plan does not include a self-insured plan if the facts
and circumstances show that the self-insured plan was designed
specifically to cover primarily employees who are working and residing
outside of the United States.
IX. Additional Rules for Determining the Applicable Fee
Under the proposed regulations, issuers and plan sponsors were
permitted to use alternative methods for determining the average number
of lives for the year. Issuers could choose any of four alternative
methods to determine the average number of lives covered under policies
that it issues for purposes of the fee imposed by section 4375: (1) The
actual count method, (2) the snapshot method, (3) the member months
method, or (4) the state form method. While the actual count and
snapshot methods count lives covered on the policy-by-policy basis for
each policy having a policy year that ends in the reporting period
(which is based on the calendar year), the member months or state form
methods count all lives covered during the calendar year for all
policies in effect during the calendar year irrespective of when actual
policy years end. Plan sponsors could use one of three alternative
methods to determine the average number of lives covered under a plan
for purposes of the fee imposed by section 4376: (1) The actual count
method, (2) the snapshot method, or (3) the Form 5500 method.
One of the permitted methods--the ``snapshot method''--would have
required issuers and plan sponsors to determine the average lives by
adding the number of lives covered on one date (or an equal number of
dates) in each quarter during the plan year or policy year and dividing
that sum by the number of dates on which the count was made.
Commentators suggested that issuers and plan sponsors using the
[[Page 72726]]
snapshot method should not be required to use the same date for each
quarter, but should be permitted to use different dates to determine
the number of lives covered during a quarter to address holidays,
weekend days, or other similar issues. The Treasury Department and the
IRS recognize the need for flexibility but also the need to avoid
permitting issuers and plan sponsors to pick the most advantageous
dates (that is, the dates on which the number of lives covered is the
lowest so that under the facts and circumstances the snapshot method
does not fairly approximate the average number of lives covered for the
applicable year). In response to these comments, the final regulations
require an issuer or a plan sponsor that uses the snapshot method to
determine the counts used based on a date during the first, second, or
third month of each quarter (or more dates in each quarter if an equal
number of dates is used for each quarter). Each date used for the
second, third, and fourth quarters must be within three days of the
date in that quarter that corresponds to the date used for the first
quarter, and all dates used must fall within the same policy year or
plan year. If an issuer or plan sponsor uses multiple dates for the
first quarter, the issuer or plan sponsor must use dates in the second,
third, and fourth quarters that correspond to each of the dates used
for the first quarter or are within three days of such corresponding
dates, and all dates used must fall within the same policy year or plan
year. The 30th and 31st day of a month are treated as the last day of
the month for purposes of determining the corresponding date for any
month that has fewer than 31 days (for example, if either March 30 or
31 are used as snapshot dates for a calendar year plan, June 30 is the
corresponding date for the second quarter). Thus, for example, under
the final regulations, if a plan sponsor uses the snapshot method to
determine the average number of lives covered under an applicable self-
insured health plan with a calendar year plan year and uses Monday,
January 7, 2013, as the counting date for the first quarter, the plan
sponsor may use any date beginning with Thursday, April 4, 2013, and
ending with Wednesday, April 10, 2013, as the counting date for the
second quarter (because all of those days are within three days of
April 7, 2013, the date that corresponds to the January 7, 2013
counting date for the first quarter).
One commentator stated that the actual count and snapshot methods
may pose significant operational challenges for many issuers. Because
these methods require a determination of the number of lives covered by
reference to the policy year for each health insurance policy that is
subject to the fee, the commentator anticipates that issuers with a
significant number of insurance policies that have policy years that
begin at different dates during a calendar year will have difficulty
implementing this approach. The commentator suggested that, regardless
of the actual policy year, issuers who choose to use the actual count
method should be permitted to measure lives covered on all days of a
calendar year and then divide the result by 365. The commentator also
suggested that, regardless of the actual policy year, issuers who
choose to use the snapshot method should be permitted to measure lives
covered using calendar year quarters and then average the results.
The final regulations do not adopt this requested change. The fee
imposed by section 4375 applies to policies based on their policy year.
For administrative ease and to facilitate the use of available
information that is compiled by issuers, these regulations provide the
member months method and the state form method as alternatives for all
policies in effect during a calendar year. Under each of these
alternatives, the data permitted to be used is already reported by the
issuer based on the calendar year. Issuers may use calendar year
information in lieu of policy year information only if they use the
member months method or the state form method.
The member months data and the data reported on state forms are
based on the calendar year. To adjust for the fee being applicable to
policy years ending after September 30, 2012, but before January 1,
2013, and after December 31, 2018, but before October 1, 2019, these
final regulations adopt the pro rata approach set out in the proposed
regulations for calculating the average number of lives covered using
the member months method or the state form method for 2012 and 2019.
For example, the member months number for 2012 is divided by 12 and the
resulting number is multiplied by one-quarter to arrive at the average
number of lives covered for October through December 2012. The proposed
regulations further treated the amount calculated under this pro rata
approach as the average number of lives covered for policies with
policy years that end on or after October 1, 2012, and before January
1, 2013. Similar rules are provided for 2019.
Commentators suggested that the special pro rata approach for
calculating the average number of lives covered using the member months
method or the state form method for 2012 and 2019 should be applied to
all years the fee is in effect, to appropriately reflect the change in
the fee during each of such intervening years. One commentator argued
that this revision is needed to prevent issuers that use these methods
from being unfairly penalized by paying the rate determined as of
December 31 of each year, resulting in an unanticipated higher
liability for an issuer using those methods.
The final regulations do not adopt this requested change. The
special pro rata approach for calculating the average number of lives
covered was the least administratively burdensome way for the first and
last policy years to which the fee applies to incorporate data from the
NAIC annual report and similar state reporting requirements with the
applicability dates for the PCORI fee related to policy years ending in
2012 and 2019. Other years are not affected by the applicability date
issues. In addition, issuers are not required to use the member months
or state form method and can use another permissible method.
X. Plan Years Subject to the PCORI Fee
The fee imposed by section 4376 applies to plan years ending on or
after October 1, 2012, and before October 1, 2019. Under the proposed
regulations, an applicable self-insured health plan was required to
determine the fee using the applicable dollar amount that applies for
the plan year and the average number of lives covered during the plan
year. Unlike the section 4375 fee, which is based on policy years, the
application and amount of the section 4376 fee is based on the
applicable dollar amount under section 4376 that is in effect on the
last day of the plan year. One commentator requested additional
examples illustrating the plan years covered by the fee, including the
first plan year to which the PCORI fee applies. In response, Sec.
46.4376-1(a) of the final regulations includes examples illustrating
the plan years (calendar and fiscal years) subject to the PCORI fee and
the applicable dollar amount that must be used to determine the section
4376 fee for that plan year.
XI. Reporting and Payment Deadline
Consistent with the proposed regulations, these final regulations
require an issuer of a specified health insurance policy and plan
sponsor of an applicable self-insured health plan to report and pay the
PCORI fee for a policy year or plan year no later than July 31 of the
year following the last day of the policy or plan year.
[[Page 72727]]
One commentator asked that the final regulations provide that the
reporting and payment due date for a plan sponsor that uses the Form
5500 method to determine the PCORI fee be the due date (including
extensions) for the plan's Form 5500. The extended due date for a Form
5500 for a plan with a calendar year plan year is generally October 15
of the following year. As discussed earlier in this preamble, the
Institute is funded in part from the PCORI fee. Under current rules,
the PCORI fee ceases to apply after the end of the last policy and plan
year ending before October 1, 2019, (with a due date of July 31, 2020)
and funding for the Institute terminates on September 30, 2019. This
lag between the last year of the PCORI fee (policy and plan years
ending before October 1, 2019) and the proposed due date for the fee
for the last year (July 31, 2020) means that the PCORI fee collected
for the last year will not be available to the Institute. A delay for
policy or plan years ending in years before 2019, as requested, would
permit the PCORI fee for the policy or plan year ending during 2018 to
be paid after September 30, 2019, and result in the Institute losing an
additional year of funding. Accordingly, the Treasury Department and
IRS have determined that delaying the proposed due date would result in
additional complications and burdens for the Institute. Thus, these
final regulations retain the proposed rule set forth in Sec.
40.6071(a)-1(c) that all plan sponsors and issuers report and pay the
PCORI fee no later than July 31 of the calendar year following the last
day of the policy or plan year.
XII. Correction and Amendments of Form 720
One commentator requested that the final regulations provide that
plan sponsors may correct, without penalty, inadvertent errors if
correction is within a specified period or if the error is de minimis.
These final regulations do not adopt this change and, therefore, do not
explicitly address corrections. As discussed in the preamble to the
proposed regulations, the PCORI fee must be reported and paid on the
Form 720, ``Quarterly Federal Excise Tax Return.''
The applicable penalties related to late filing of the applicable
form or late payment of the applicable fee, however, may be waived or
abated if the issuer or plan sponsor has reasonable cause and the
failure was not due to willful neglect. See Sec. 301.6651-1(c)
relating to rules for showing of reasonable cause. Issuers and plan
sponsors may use Form 720X, ``Amended Quarterly Federal Excise Tax
Return,'' to make adjustments to liabilities reported on a previously
filed Form 720, including adjustments that result in an overpayment.
XIII. Special Rules for First Year Fee Is in Effect
The Treasury Department and the IRS recognized when issuing the
proposed regulations that in certain instances the policy or plan year
to which the PCORI fee would apply had already commenced, and therefore
that transition relief was appropriate for purposes of counting lives
covered under the policy or plan during the period before the issuance
of the proposed regulations. Two commentators requested additional
transition relief, including extending the good faith compliance period
provided under the proposed regulations. These final regulations do not
adopt this request because the Treasury Department and IRS have
determined that the relief provided in the proposed regulations is
sufficient.
Accordingly, consistent with the proposed regulations, these final
regulations provide that an issuer using the actual count method for
determining the average number of lives covered under a policy with a
policy year that ends on or after October 1, 2012, could begin counting
lives covered under a policy as of May 14, 2012 (30 days after the date
that the proposed regulations were published in the Federal Register),
rather than the first day of the policy year, and divide by the
appropriate number of days remaining in the policy year. Similarly, for
policy years that end on or after October 1, 2012, but that began
before May 14, 2012, these regulations provide that issuers using the
snapshot method could use counts from quarters beginning on or after
May 14, 2012, to determine the average number of lives covered under
the policy. These final regulations also permit a plan sponsor to use
any reasonable method to determine the average number of lives covered
under an applicable self-insured health plan for a plan year beginning
before July 11, 2012 (90 days after the date that the proposed
regulations were published in the Federal Register), and ending on or
after October 1, 2012.
XIV. Third-Party or Affiliated Insurer Reporting and Payment
The proposed regulations did not permit third-party reporting or
payment of the PCORI fee. One commentator requested that the final
regulations permit third-party reporting and payment. Another
commentator requested that the final regulations permit affiliated
insurers to designate an insurer that will be responsible for payment
of the section 4375 fee as long as the responsible insurer consents to
such designation. Because the PCORI fee ceases to apply to policy years
and plan years that end on or after October 1, 2019, the Treasury
Department and IRS have determined that the burden and complexity that
would have to be addressed by issuers, plan sponsors and the IRS to
develop and operate a third-party reporting and payment regime
significantly outweigh the benefits of such a regime. Therefore, the
final regulations do not permit or include rules for third-party
reporting or payment of the PCORI fee.
Applicability Date
These regulations apply to policy and plan years ending on or after
October 1, 2012, and before October 1, 2019.
Special Analyses
It has been determined that these final regulations are not a
significant regulatory action as defined in Executive Order 12866, as
supplemented by Executive Order 13563. Therefore, a regulatory
assessment is not required. It is hereby certified that these final
regulations will not have a significant economic impact on a
substantial number of small entities. This certification is based on
the fact that small businesses generally do not have self-insured
health plans and that these regulations will therefore primarily affect
large corporations. Therefore, a Regulatory Flexibility Analysis under
the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.
The Treasury Department and the IRS specifically solicit comments from
any party, particularly affected small entities, on the accuracy of
this certification. Pursuant to section 7805(f) of the Code, the
proposed regulations were submitted to the Chief Counsel for Advocacy
of the Small Business Administration for comments on its impact on
small business and no comments were received.
Drafting Information
The principal authors of these regulations are R. Lisa Mojiri-Azad,
Office of Division Counsel/Associate Chief Counsel (Tax Exempt and
Government Entities), and Rebecca L. Baxter, Office of Associate Chief
Counsel (Financial Institutions & Products). However, other personnel
from the Treasury Department and the IRS participated in their
development.
[[Page 72728]]
List of Subjects
26 CFR Part 40
Excise taxes, Reporting and recordkeeping requirements.
26 CFR Part 46
Excise taxes, Insurance, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 40, 46, and 602 are amended as follows:
PART 40--EXCISE TAX PROCEDURAL REGULATIONS
0
Paragraph 1. The authority citation for part 40 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 40.0-1 is amended by:
0
1. Removing from the third sentence in paragraph (a) the language
``chapter 34 to taxes imposed on policies issued by foreign insurers''
and adding ``chapter 34 to taxes imposed on certain insurance
policies'' in its place.
0
2. Adding a new sentence after the third sentence in paragraph (a).
The addition reads as follows:
Sec. 40.0-1 Introduction.
(a) * * * References in this part to ``taxes'' also include
references to the fees imposed by sections 4375 and 4376. * * *
* * * * *
0
Par. 3. Section 40.6011(a)-1 is amended by:
0
1. In paragraph (a)(2)(i), first sentence, the language ``paragraph (b)
of this section'' is removed and the language ``paragraphs (b) and (c)
of this section'' is added in its place.
0
2. Paragraph (c) is added.
The addition reads as follows:
Sec. 40.6011(a)-1 Returns.
* * * * *
(c) Fees on health insurance policies and self-insured health
plans--(1) In general. A return that reports liability imposed by
section 4375 or 4376 is a return for policies or plans with policy or
plan years ending in the previous calendar year, and, for issuers that
determine the average number of lives covered under a policy for
purposes of section 4375 using the member months method under Sec.
46.4375-1(c)(2)(v) or the state form method under Sec. 46.4375-
1(c)(2)(vi) of this chapter, the return is for all policies in effect
during the previous calendar year. The second sentence of paragraph
(a)(2)(i) of this section (relating to filing quarterly returns
regardless of whether liability is incurred) does not apply to a person
that files a Form 720, ``Quarterly Federal Excise Tax Return,'' only to
report liability imposed by section 4375 or 4376.
(2) Applicability date. This paragraph (c) applies to returns that
report liability imposed by section 4375 or 4376.
0
Par. 4. Section 40.6071(a)-1 is amended as follows:
0
1. Paragraph (c) is revised.
0
2. Paragraph (d) is added.
The revision and addition read as follows:
Sec. 40.6071(a)-1 Time for filing returns.
* * * * *
(c) Fees on health insurance policies and self-insured health
plans--(1) Specified health insurance policies. A return that reports
liability for the fee imposed by section 4375 must be filed by July 31
of the calendar year immediately following the last day of the policy
year. For issuers that determine the average number of lives covered
under the policy for section 4375 using the member months method under
Sec. 46.4375-1(c)(2)(v) or the state form method under Sec. 46.4375-
1(c)(2)(vi), the return must be filed by July 31 of the immediately
following calendar year. Thus, for example, a return that reports
liability for the fee imposed by section 4375 for the year ending on
December 31, 2012, must be filed by July 31, 2013.
(2) Applicable self-insured health plans. A return that reports
liability for the fee imposed by section 4376 for a plan year must be
filed by July 31 of the calendar year immediately following the last
day of the plan year. Thus, for example, a return that reports
liability for the fee imposed by section 4376 for the plan year ending
on January 31, 2013, must be filed by July 31, 2014.
(d) Effective/Applicability date. Paragraphs (a) and (b) of this
section apply to returns for calendar quarters beginning on or after
October 1, 2001, and paragraph (c) of this section applies to returns
that report liability imposed by section 4375 or 4376.
Sec. 40.6091-1 Amended
0
Par. 5. Section 40.6091-1, paragraph (a), is amended by removing the
language ``paragraph (b) of this section, quarterly returns'' and by
adding the language ``paragraphs (b) and (c) of this section, returns''
in its place.
0
Par. 6. Section 40.6302(c)-1 is amended by revising paragraph
(e)(1)(iv) to read as follows:
Sec. 40.6302(c)-1 Deposits.
* * * * *
(e) * * *
(1) * * *
(iv) Sections 4375 and 4376 (relating to fees on health insurance
policies and self-insured health plans).
* * * * *
PART 46--EXCISE TAX ON CERTAIN INSURANCE POLICIES, SELF-INSURED
HEALTH PLANS, AND OBLIGATIONS NOT IN REGISTERED FORM
0
Par. 7. The authority citation for part 46 continues to read in part as
follows:
Authority: 26 U.S.C. 7805. * * *
0
Par. 8. In part 46, the heading is revised to read as set forth above.
Sec. 46.0-1 Amended
0
Par. 9. In Sec. 46.0-1, first sentence, the language ``policies issued
by foreign insurers'' is removed and the language ``certain insurance
policies and self-insured health plans'' is added in its place.
Sec. 46.0-2 [Removed]
0
Par. 10. Section 46.0-2 is removed.
0
Par. 11. In Part 46, subpart C is redesignated as subpart D and a new
subpart C is added to read as follows:
Subpart C--Fees on Insured and Self-insured Health Plans
Sec.
46.4375-1 Fee on issuers of specified health insurance policies.
46.4376-1 Fee on sponsors of self-insured health plans.
46.4377-1 Definitions and special rules.
Subpart C--Fees on Insured and Self-insured Health Plans
Sec. 46.4375-1 Fee on issuers of specified health insurance policies.
(a) In general. An issuer of a specified health insurance policy is
liable for a fee imposed by section 4375 for policy years ending on or
after October 1, 2012, and before October 1, 2019. Paragraph (b) of
this section provides definitions that apply for purposes of section
4375 and this section. Paragraph (c) of this section provides rules for
calculating the fee under section 4375. Paragraph (d) of this section
provides the applicability date. For rules relating to filing the
required return and paying the fee, see Sec. Sec. 40.6011(a)-1 and
40.6071(a)-1 of this chapter.
(b) Definitions. The following definitions apply for purposes of
section 4375 and this section. See also Sec. 46.4377-1 for additional
definitions.
(1) Specified health insurance policy--(i) In general. Except as
[[Page 72729]]
provided in paragraph (b)(1)(ii) of this section and Sec. 46.4377-1,
specified health insurance policy means any accident and health
insurance policy (including a policy under a group health plan) issued
with respect to individuals residing in the United States (as defined
in Sec. 46.4377-1(a)(2)), including prepaid health coverage
arrangements described in paragraph (b)(2) of this section. Specified
health insurance policy also includes any policy that provides accident
and health coverage to an active employee, former employee, or
qualifying beneficiary, as continuation coverage required under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) or
similar continuation coverage under other Federal law or state law.
(ii) Exceptions. The term specified health insurance policy does
not include--
(A) Any insurance policy if substantially all of its coverage is of
excepted benefits described in section 9832(c);
(B) Any group policy issued to an employer where the facts and
circumstances show that the group policy was designed and issued
specifically to cover primarily employees who are working and residing
outside of the United States (as defined in Sec. 46.4377-1(a)(3));
(C) Any stop loss or indemnity reinsurance policy; or
(D) Any insurance policy to the extent it provides an employee
assistance program, disease management program, or wellness program if
the program does not provide significant benefits in the nature of
medical care or treatment.
(iii) Stop loss policy. For purposes of paragraph (b)(1)(ii) of
this section, stop loss policy means an insurance policy in which--
(A) The insurer that issues the policy to a person establishing or
maintaining a self-insured health plan becomes liable for all, or an
agreed upon portion of, losses that person incurs in covering the
applicable lives in excess of a specified amount; and
(B) The person establishing or maintaining the self-insured health
plan retains its liability to, and its contractual relationship with,
the applicable lives covered.
(iv) Indemnity reinsurance policy. For purposes of paragraph
(b)(1)(ii) of this section, indemnity reinsurance policy means an
agreement between two or more insurance companies under which--
(A) The reinsuring company agrees to accept and to indemnify the
issuing company for all or part of the risk of loss under policies
specified in the agreement; and
(B) The issuing company retains its liability to, and its
contractual relationship with, the applicable lives covered.
(2) Prepaid health coverage arrangement. The term prepaid health
coverage arrangement means an arrangement under which fixed payments or
premiums are received as consideration for a person's agreement to
provide or arrange for the provision of accident and health coverage to
individuals residing in the United States, regardless of how such
coverage is provided or arranged to be provided. For example, any
hospital or medical service policy or certificate, hospital or medical
service plan contract, or health maintenance organization contract is a
specified health insurance policy.
(c) Calculation of fee--(1) In general. The amount of the fee for a
policy for a policy year is equal to the product of the average number
of lives covered under the policy for the policy year (determined in
accordance with paragraphs (c)(2) and (c)(3) of this section) and the
applicable dollar amount (determined in accordance with paragraph
(c)(4) of this section). For purposes of computing the fee under this
paragraph (c), in the case of an issuer that determines the average
number of lives covered for all policies in effect during a calendar
year using the member months method under paragraph (c)(2)(v) of this
section or the state form method under paragraph (c)(2)(vi) of this
section, the applicable dollar amount with respect to such issuer's
policies for such calendar year is the applicable dollar amount for
policy years ending on December 31 of such calendar year (determined in
accordance with paragraph (c)(4) of this section), except that the
applicable dollar amount with respect to such an issuer's policies for
calendar year 2019 is the applicable dollar amount for policy years
ending on September 30, 2019. For more information, see the examples in
paragraphs (c)(2)(iii)(B), (c)(2)(iv)(B), (c)(2)(v)(B), and
(c)(2)(vi)(B) of this section.
(2) Determination of the average number of lives covered under a
policy--(i) In general. To determine the average number of lives
covered under a specified health insurance policy during a policy year,
an issuer must use one of the following methods--
(A) The actual count method (described in paragraph (c)(2)(iii) of
this section);
(B) The snapshot method (described in paragraph (c)(2)(iv) of this
section);
(C) The member months method (described in paragraph (c)(2)(v) of
this section); or
(D) The state form method (described in paragraph (c)(2)(vi) of
this section).
(ii) Consistency requirements. An issuer must use the same method
of calculating the average number of lives covered under a policy
consistently for the duration of the year. In addition, for all
policies for which a liability is reported on a Form 720, ``Quarterly
Federal Excise Tax Return,'' for a particular year, the issuer must use
the same method of computing lives covered. An issuer that determines
the average number of lives covered by using the actual count method
described in paragraph (c)(2)(iii) of this section or the snapshot
method described in paragraph (c)(2)(iv) of this section may change its
method of computing the average lives covered to the snapshot method or
actual count method, respectively, provided that the issuer uses the
same method for computing the average lives covered for all policies
for which a liability is reported on the Form 720 for that year. For
example, an issuer with a policy having a policy year that ends on June
30, Policy A, may determine the average number of lives covered under
Policy A for July 1, 2013, to June 30, 2014, using the actual count
method if the issuer uses the actual count method for all policies for
which a liability will be reported on the Form 720 due by July 31, 2015
(the due date for return that will include the liability for the July
2013 to June 2014 policy year for Policy A). The issuer may change its
method for determining the average number of lives covered under Policy
A to the snapshot method for the July 1, 2014, to June 30, 2015, policy
year, provided that the snapshot method is used for all policies for
which a liability will be reported on the Form 720 due by July 31, 2016
(the due date for return that will include the liability for the July
2014 to June 2015 policy year for Policy A). An issuer that determines
the average number of lives covered by using the member months method
under paragraph (c)(2)(v) of this section or the state form method
under paragraph (c)(2)(vi) of this section must use the same method for
calculating lives covered for all policy years for which the fee
applies.
(iii) Actual count method--(A) Calculation method. An issuer may
determine the average number of lives covered under a policy for a
policy year by adding the total number of lives covered for each day of
the policy year and dividing that total by the number of days in the
policy year.
[[Page 72730]]
(B) Example. The following example illustrates the principles of
paragraphs (c)(1) and (c)(2)(iii)(A) of this section:
Example. Insurance Company A issues three policies that are in
effect during 2014, Group Health Insurance Policy A, which has a
policy year from December 1 to November 30, Group Health Insurance
Policy B, which has a policy year from March 1 to February 28, and
Group Health Insurance Policy C, which has a policy year from
January 1 to December 31. To calculate the average number of lives
covered for 2014, Insurance Company A must calculate the average
number of lives covered for each of its three policies for the
policy year that ends in 2014. Insurance Company A chooses to use
the actual count method under paragraph (c)(2)(iii)(A) of this
section to determine average lives covered for policies having a
policy year that ends in 2014. Insurance Company A calculates the
sum of lives covered under Policy A for each day of the policy year
ending November 30, 2014, as 3,285,000. The average number of lives
covered under Policy A for the policy year ending November 30, 2014,
is 3,285,000 divided by 365, or 9,000. Insurance Company A
calculates the sum of lives covered under Policy B for each day of
the policy year ending February 28, 2014, as 547,500. The average
number of lives covered under Policy B for the policy year ending on
February 28, 2014, is 547,500 divided by 365, or 1,500. Insurance
Company A calculates the sum of lives covered under Policy C for
each day of the policy year ending December 31, 2014, as 4,380,000.
The average number of lives covered under Policy C for the policy
year ending December 31, 2014, is 4,380,000 divided by 365, or
12,000. To calculate the section 4375 fee under paragraph (c)(1) of
this section for calendar year 2014, Insurance Company A must first
determine the applicable dollar amount for each policy under
paragraph (c)(4) of this section and multiply that amount by the
average number of lives covered for that policy. Insurance Company A
then adds the total fees for all three policies to determine the
total fee under section 4375 that it must pay for calendar year
2014.
(iv) Snapshot method--(A) Calculation method. An issuer may
determine the average number of lives covered under a policy for a
policy year by adding the totals of lives covered on a date during the
first, second, or third month of each quarter (or more dates in each
quarter if an equal number of dates is used for each quarter), and
dividing that total by the number of dates on which a count is made.
For purposes of this paragraph (c)(2)(iv)(A), each date used for the
second, third and fourth quarters must be within three days of the date
in that quarter that corresponds to the date used for the first
quarter, and all dates used must be within the same policy year. If an
issuer uses multiple dates for the first quarter, the issuer must use
dates in the second, third, and fourth quarters that correspond to each
of the dates used for the first quarter or are within three days of
such corresponding dates, and all dates used must be within the same
policy year. The 30th and 31st day of a month are treated as the last
day of the month for purposes of determining the corresponding date for
any month that has fewer than 31 days (for example, if either March 30
or March 31 is used as a counting date for a calendar year policy, June
30 is the corresponding date for the second quarter).
(B) Example. The following example illustrates the principles of
paragraphs (c)(1) and (c)(2)(iv)(A) of this section:
Example. (i) Insurance Company B issues three policies with 12-
month policy years that end in 2014, Group Health Insurance Policy
A, which has a policy year from December 1 to November 30, Group
Health Insurance Policy B, which has a policy year from March 1 to
February 28, and Group Health Insurance Policy C, which has a policy
year from January 1 to December 31. To calculate the average number
of lives covered for 2014, Insurance Company B must calculate the
average number of lives covered for each of its three policies for
the policy year that ends in 2014. Insurance Company B chooses to
determine the average lives covered using the snapshot method for
all policies that have a policy year that ends in 2014 and chooses
to count lives covered on a single date of the first month of each
quarter of the policy years. Thus, for Policy A, Insurance Company B
must count lives covered on a single date falling in each of
December 2013, March 2014, June 2014 and September 2014; for Policy
B, Insurance Company B must count lives covered on a single date
falling in each of March 2014, June 2014, September 2014 and
December 2014; and for Policy C, Insurance Company B must count
lives covered on a single date falling in each of January 2014,
April 2014, July 2014 and October 2014. In addition, the date for
each of the second, third, and fourth quarters must fall within
three days of the date in such quarter that corresponds to the date
used for the first quarter, and must fall within the same policy
year.
(ii) On December 6, 2013, Policy A covers 8,900 lives, on March
7, 2014, 9,100 lives, on June 6, 2014, 9,050 lives, and on September
5, 2014, 9,050 lives. Insurance Company B treats the average number
of lives covered under Policy A for the policy year ending November
30, 2014, as 36,100 (8,900 + 9,100 + 9,050 + 9,050) divided by 4, or
9,025.
(iii) On March 4, 2013, Policy B covers 1,500 lives, on June 7,
2013, 1,350 lives, on September 6, 2013, 1,400 lives, and on
December 6, 2013, 1,550 lives. Insurance Company B treats the
average number of lives covered under Policy B for the policy year
ending February 28, 2014, as 5,800 (1,500 + 1,350 + 1,400 + 1,550)
divided by 4, or 1,450.
(iv) On January 6, 2014, Policy C covers 12,500 lives, on April
4, 2014, 12,250 lives, on July 7, 2014, 12,000 lives, and on October
3, 2014, 11,250 lives. Insurance Company B treats the average number
of lives covered under Policy C for the policy year ending December
31, 2014, as 47,750 (12,500 + 12,250 + 12,000 + 11,250) divided by
4, or 12,000.
(v) To calculate the section 4375 fee under paragraph (c)(1) of
this section for calendar year 2014, Insurance Company B must first
determine the applicable dollar amount for each policy under
paragraph (c)(4) of this section and multiply that amount by the
number of average lives covered for that policy. Insurance Company B
then adds the total fees for all three policies to determine the
total fee under section 4375 that it must pay for calendar year
2014.
(v) Member months method--(A) Calculation method. An issuer may
determine the average number of lives covered under all policies in
effect for a calendar year based on the member months (an amount that
equals the sum of the totals of lives covered on pre-specified days in
each month of the reporting period) reported on the National
Association of Insurance Commissioners (NAIC) Supplemental Health Care
Exhibit filed for that calendar year. Under this method, the average
number of lives covered under the policies in effect for the calendar
year equals the member months divided by 12.
(B) Example. The following example illustrates the principles of
paragraphs (c)(1) and (c)(2)(v)(A) of this section:
Example. Insurance Company C chooses to determine the average
number of lives covered for all years to which the section 4375 fee
applies using the member months method of paragraph (c)(2)(v)(A) of
this section. Insurance Company C reports 12,000,000 as its member
months on the NAIC Supplemental Health Care Exhibit filed for
calendar year 2013. Under the member months method, Insurance
Company C calculates the average number of lives covered for all its
specified health insurance policies in force during calendar year
2013 by dividing 12,000,000 (member months) by 12 (number of months
in the reporting period), which equals 1,000,000. To determine the
section 4375 fee it must pay for calendar year 2013, Insurance
Company C multiplies 1,000,000 by the applicable dollar amount that
is in effect at the end of the calendar year under paragraph (c)(4)
of this section.
(vi) State form method--(A) Calculation method. An issuer that is
not required to file NAIC annual financial statements may determine the
number of lives covered under all policies in effect for the calendar
year using a form that is filed with the issuer's state of domicile and
a method similar to that described in paragraph (c)(2)(v) of this
section, if the form reports the number of lives covered in the same
manner as member months are reported on the NAIC Supplemental Health
Care Exhibit.
[[Page 72731]]
(B) Example. The following example illustrates the principles of
paragraphs (c)(1) and (c)(2)(vi)(A) of this section:
Example. Insurance Company D is not required to file the NAIC
Supplemental Health Care Exhibit, but files a form with its state of
domicile. Insurance Company D chooses to determine the average
number of lives covered for all years to which the section 4375 fee
applies using the state form method of paragraph (c)(2)(vi)(A) of
this section. The state form reports the number of lives covered in
the same manner as member months is reported on the NAIC
Supplemental Health Care Exhibit. For calendar year 2013, Insurance
Company D reports 12,000,000 as its equivalent member months on the
state form. Under the state form method, Insurance Company D
calculates the average number of lives covered for all of its
specified health insurance policies in force during calendar year
2013 by dividing 12,000,000 (equivalent member months) by 12 (number
of months in the reporting period), which equals 1,000,000. To
determine the section 4375 fee it must pay for calendar year 2013,
Insurance Company D multiplies 1,000,000 by the applicable dollar
amount that is in effect at the end of the calendar year under
paragraph (c)(4) of this section.
(3) Special rules for the first year and the last year the fee is
in effect--(i) Calculation of the average number of lives covered under
the policy for the first year the fee is in effect. For issuers that
determine the average number of lives covered using data reported on
the 2012 NAIC Supplemental Health Care Exhibit or a permitted state
form that covers the 2012 calendar year, the average number of lives
covered under all policies in effect for the 2012 calendar year equals
the average number of lives covered for that year (as determined under
paragraph (c)(2)(v) or (vi) of this section) multiplied by \1/4\. The
resulting number is deemed to be the average number of lives covered
for policies with policy years ending on or after October 1, 2012, and
before January 1, 2013. For policy years beginning before May 14, 2012,
and ending on or after October 1, 2012, issuers that determine the
average number of lives covered using the actual count method under
paragraph (c)(2)(iii) of this section may calculate the average number
of lives covered using data from the period beginning May 14, 2012,
through the end of the policy year. For policy years beginning before
May 14, 2012, and ending on or after October 1, 2012, issuers that
determine the average number of lives covered using the snapshot method
under paragraph (c)(2)(iv) of this section may calculate the average
number of lives covered using dates from the quarters remaining in the
policy year starting on or after May 14, 2012. If an abbreviated year
is used, the issuer will divide the number of lives covered by the
number of days from May 14, 2012, through the end of the policy year
(for the actual count method) or the number of days on which a count
was made (for the snapshot method).
(ii) Calculation of the average number of lives covered under the
policy for the last year the fee is in effect. For issuers that
determine the average number of lives covered using data reported on
the 2019 NAIC Supplemental Health Care Exhibit or a permitted state
form that covers the 2019 calendar year, the average number of lives
covered for all policies in effect during the 2019 calendar year equals
the average number of lives covered for that year (as determined under
paragraph (c)(2)(v) or (vi) of this section) multiplied by \3/4\. The
resulting number is deemed to be the average number of lives covered
for policies with policy years ending on or after January 1, 2019, and
before October 1, 2019.
(iii) Examples. The following examples illustrate the principles of
paragraph (c)(3) of this section:
Example 1. Insurance Company E issues Group Health Insurance
Policy C, which has a policy year that ends on November 30, 2012.
Insurance Company E determines the average number of lives covered
under a policy by using the actual count method. Under that method,
for that policy year, Insurance Company E calculates the sum of
lives covered under Policy C for each day between May 14, 2012, and
November 30, 2012, as 10,000. The average number of lives covered
under Policy C for that policy year is 10,000 divided by the number
of days from May 14, 2012, through November 30, 2012. Alternatively,
Insurance Company E could have counted the number of lives covered
for the entire policy year and divided the sum by 365.
Example 2. Insurance Company F reports 12,000,000 as its member
months on its NAIC Supplemental Health Care Exhibit filed for
calendar year 2012. Under the member months method, Insurance
Company F calculates the average number of lives covered for 2012 by
dividing 12,000,000 (member months) by 12 (number of months in the
reporting period), and then multiplying the result (1,000,000) by
\1/4\, which equals 250,000. Accordingly, the average number of
lives covered for policies with policy years ending on or after
October 1, 2012, and before January 1, 2013, is 250,000.
(4) Applicable dollar amount. For policy years ending on or after
October 1, 2012, and before October 1, 2013, the applicable dollar
amount is $1. For policy years ending on or after October 1, 2013, and
before October 1, 2014, the applicable dollar amount is $2. For any
policy year ending in any Federal fiscal year beginning on or after
October 1, 2014, the applicable dollar amount is the sum of--
(i) The applicable dollar amount for the policy year ending in the
previous Federal fiscal year; plus
(ii) The amount equal to the product of--
(A) The applicable dollar amount for the policy year ending in the
previous Federal fiscal year; and
(B) The percentage increase in the projected per capita amount of
the National Health Expenditures most recently released by the
Department of Health and Human Services before the beginning of the
Federal fiscal year.
(d) Effective/Applicability date. This section applies for policies
with policy years ending on or after October 1, 2012, and before
October 1, 2019.
Sec. 46.4376-1 Fee on sponsors of self-insured health plans.
(a) In general--(1) General rule. A plan sponsor of an applicable
self-insured health plan is liable for a fee imposed by section 4376
for plans with plan years ending on or after October 1, 2012, and
before October 1, 2019. Paragraph (b) of this section provides the
definitions that apply for purposes of section 4376 and this section.
Paragraph (c) of this section provides the requirements for calculating
the fee imposed by section 4376. Paragraph (d) of this section provides
the applicability date. For rules relating to filing the required
return and paying the fee, see Sec. Sec. 40.6011(a)-1 and 40.6071(a)-
1.
(2) [Reserved]
(b) Definitions. The following definitions apply for purposes of
section 4376 and this section. See Sec. 46.4377-1 for additional
definitions.
(1) Applicable self-insured health plan--(i) In general. Except as
provided in paragraph (b)(1)(ii) of this section and Sec. 46.4377-1,
applicable self-insured health plan means a plan that provides for
accident and health coverage (within the meaning of Sec. 46.4377-1(a))
if any portion of the coverage is provided other than through an
insurance policy and the plan is established or maintained--
(A) By one or more employers for the benefit of their employees or
former employees;
(B) By one or more employee organizations for the benefit of their
members or former members;
(C) Jointly by one or more employers and one or more employee
organizations for the benefit of employees or former employees;
(D) By a voluntary employees' beneficiary association, as described
in section 501(c)(9);
(E) By an organization described in section 501(c)(6); or
[[Page 72732]]
(F) By a multiple employer welfare arrangement (as defined in
section 3(40) of the Employee Retirement Income Security Act of 1974
(ERISA)), a rural electric cooperative (as defined in section
3(40)(B)(iv) of ERISA), or a rural cooperative association (as defined
in section 3(40)(B)(v) of ERISA).
(ii) Exceptions. The term applicable self-insured health plan does
not include any of the following:
(A) A plan that provides benefits substantially all of which are
excepted benefits, as defined in section 9832(c). For example, a health
flexible spending arrangement (health FSA) (as described in section
106(c)(2)) that satisfies the requirements to be treated as an excepted
benefit under section 9832(c) and Sec. 54.9831-1(c)(3)(v) of this
chapter is not an applicable self-insured health plan. A health FSA
that is not treated as an excepted benefit under section 9832(c) and
Sec. 54.9831-1(c)(3)(v) is an applicable self-insured health plan.
(B) An employee assistance program, disease management program, or
wellness program if the program does not provide significant benefits
in the nature of medical care or treatment.
(C) A plan that, as demonstrated by the facts and circumstances
surrounding the adoption and operation of the plan, was designed
specifically to cover primarily employees who are working and residing
outside the United States (as defined in Sec. 46.4377-1(a)(3)).
(iii) Multiple self-insured arrangements established or maintained
by the same plan sponsor. For purposes of section 4376, two or more
arrangements established or maintained by the same plan sponsor that
provide for accident and health coverage (within the meaning of Sec.
46.4377-1(a)) other than through an insurance policy and that have the
same plan year may be treated as a single applicable self-insured
health plan for purposes of calculating the fee imposed by section
4376. For example, if a plan sponsor establishes or maintains a self-
insured arrangement providing major medical benefits, and a separate
self-insured arrangement with the same plan year providing prescription
drug benefits, the two arrangements may be treated as one applicable
self-insured health plan so that the same life covered under each
arrangement would count as only one covered life under the plan for
purposes of calculating the fee. Similarly, if a plan sponsor provides
a Health Reimbursement Arrangement (HRA) and another applicable self-
insured health plan that provides major medical coverage, the HRA and
the major medical plan may be treated as one applicable self-insured
health plan if the HRA and the self-insured plan have the same plan
year.
(iv) Examples. The following examples illustrate the principle of
this paragraph (b)(1):
Example 1. (i) Plan Sponsor D sponsors and maintains three
separate plans to provide certain benefits to its employees--Plan
501, Plan 502, and Plan 503.
(ii) Plan 501 is a calendar year plan that provides accident and
health benefits, other than through insurance (that is, on a self-
insured basis), to employees of Plan Sponsor D. Plan 502 is a
calendar year HRA that can be used to pay for qualified accident and
medical expenses for employees of Plan Sponsor D and their eligible
dependents. Plan 503 provides dental and vision benefits for
employees of Plan Sponsor D and eligible dependents, other than
through insurance (that is, on a self-insured basis).
(iii) Because Plan 501 and Plan 502 provide accident and health
coverage (within the meaning of Sec. 46.4377-1(a)) and are
maintained by Plan Sponsor D for the benefit of its employees, Plans
501 and 502 are applicable self-insured health plans that are
subject to the fee imposed by section 4376. Because dental and
vision benefits are excepted benefits, as defined in section
9832(c), Plan 503 is not an applicable self-insured health plan
subject to the section 4376 fee. Under the special rule set forth in
Sec. 46.4376-2(b)(1)(iii), Plan Sponsor D may treat Plans 501 and
502 (both self-insured plans with a calendar year plan year) as a
single plan for purposes of calculating the fee imposed by section
4376.
Example 2. Same facts as Example 1, except Plan 503 is not a
Plan that provides dental and vision benefits, but rather a plan
that provides accident and health coverage solely to employees who
are working and residing outside the United States and does not
provide any benefits to employees who are not working and residing
outside the United States. Plan 503 is designed specifically to
provide coverage to employees working and residing outside the
United States because it limits coverage to these employees.
Therefore, in accordance with the exception described in Sec.
46.4376-1(b)(1)(ii)(C), Plan 503 is not an applicable self-insured
health plan.
(2) Plan sponsor--(i) In general. The term plan sponsor means--
(A) The employer, in the case of an applicable self-insured health
plan established or maintained by a single employer;
(B) The employee organization, in the case of an applicable self-
insured health plan established or maintained by an employee
organization;
(C) The joint board of trustees, in the case of a multiemployer
plan (as defined in section 414(f));
(D) The committee, in the case of a multiple employer welfare
arrangement (as defined in section 3(40) of ERISA);
(E) The cooperative or association that establishes or maintains an
applicable self-insured health plan established or maintained by a
rural electric cooperative (as defined in section 3(40)(B)(iv) of
ERISA) or rural cooperative association (as defined in section
3(40)(B)(v) of ERISA);
(F) The trustee, in the case of an applicable self-insured health
plan established or maintained by a voluntary employees' beneficiary
association (meaning that the voluntary employees' beneficiary
association is not merely serving as a funding vehicle for a plan that
is established or maintained by an employer or other person); or
(G) In the case of an applicable self-insured health plan the plan
sponsor of which is not described in paragraphs (b)(2)(i)(A) through
(F) of this section, the person identified by the terms of the document
under which the plan is operated as the plan sponsor, or the person
designated by the terms of the document under which the plan is
operated as the plan sponsor for section 4376 purposes, provided that
designation is made in writing, and that person has consented to the
designation in writing, by no later than the date by which the return
paying the fee under section 4376 for that plan year is required to be
filed, after which date that designation for that plan year may not be
changed or revoked, and provided further that a person may be
designated as the plan sponsor only if the person is one of the persons
establishing or maintaining the plan (for example, one of the employers
that establishes or maintains the plan with one or more other employers
or employee organizations).
(H) In the case of an applicable self-insured health plan the
sponsor of which is not described in paragraphs (b)(2)(i)(A) through
(F) of this section, and for which no identification or designation of
a plan sponsor has been made pursuant to paragraph (b)(2)(i)(G) of this
section, each employer that establishes or maintains the plan (with
respect to employees of that employer), each employee organization that
establishes or maintains the plan (with respect to members of that
employee organization), and each board of trustees, cooperative, or
association that establishes or maintains the plan, meaning that each
plan sponsor must file a separate Form 720, ``Quarterly Federal Excise
Tax Return,'' reflecting its separate liability under section 4376.
(ii) Examples. The following examples illustrate the principles of
paragraph (b)(2) of this section:
Example 1. (i) Corporation XYZ is a holding company with no
employees that owns all the issued and outstanding shares of
Employer X, Employer Y, and Employer Z.
[[Page 72733]]
Employer X, Employer Y, and Employer Z have established the XYZ
Group Health Plan to provide accident and health coverage, provided
other than through an insurance policy, for the benefit of their
employees. The XYZ Group Health Plan has a calendar year plan year.
In addition, there is no plan sponsor identified or designated in
the plan document.
(ii) Because the XYZ Group Health Plan provides accident and
health coverage other than through an insurance policy, and is
established by one or more employers for the benefit of their
employees, the XYZ Group Health Plan is an applicable self-insured
health plan under section 4376(c)(2)(A) and paragraph (b)(1)(i)(A)
of this section. Because a plan sponsor is not identified or
designated in the governing plan document, the plan sponsor, for
purposes of section 4376, is determined under paragraph (b)(2)(i)(H)
of this section as each employer that establishes or maintains the
plan (Employer X, Employer Y, and Employer Z), each with respect to
its employees covered under the plan. Accordingly, Employer X,
Employer Y, and Employer Z each must file a Form 720 reflecting
their separate liabilities under section 4376, calculated based on
lives covered that are employees of that employer (or spouses,
dependents, or other beneficiaries of employees of that employer)
and the applicable dollar amount in effect for the plan year.
Example 2. The same facts as Example 1, except that the
governing plan document designates Employer X as the plan sponsor of
the XYZ Group Health Plan for purposes of the fee under section 4376
and Employer X consents to this designation no later than the due
date for paying the fee under section 4376. Accordingly, the plan
sponsor for purposes of section 4376 is determined under paragraph
(b)(2)(i)(G) of this section as Employer X. Employer X must file a
Form 720 reflecting liabilities under section 4376, calculated based
upon lives covered that are employees of Employer X, Employer Y, or
Employer Z, or spouses, dependents, or other beneficiaries of
employees of those employers and the applicable dollar amount in
effect for the plan year.
(c) Calculation of fee--(1) In general. The amount of the fee for a
plan year is equal to the product of the average number of lives
covered under the plan for the plan year (determined in accordance with
paragraph (c)(2) of this section) and the applicable dollar amount
(determined in accordance with paragraph (c)(3) of this section).
(2) Determination of the average number of lives covered under the
plan--(i) In general. To determine the average number of lives covered
under an applicable self-insured health plan during a plan year, a plan
sponsor must use one of the following methods--
(A) The actual count method (described in paragraph (c)(2)(iii) of
this section);
(B) The snapshot method (described in paragraph (c)(2)(iv) of this
section); or
(C) The Form 5500 method (described in paragraph (c)(2)(v) of this
section).
(ii) Consistency within plan year. A plan sponsor must use the same
method of calculating the average number of lives covered under the
plan consistently for the duration of the plan year. However, a plan
sponsor may use a different method from one plan year to the next.
(iii) Actual count method--(A) In general. A plan sponsor may
determine the average number of lives covered under a plan for a plan
year by adding the totals of lives covered for each day of the plan
year and dividing that total by the number of days in the plan year.
(B) Example. The following example illustrates the principles of
paragraphs (c)(1) and (c)(2)(iii)(A) of this section:
Example. Employer A is the plan sponsor of the Employer A Self-
Insured Health Plan, which has a calendar year plan year. Employer A
calculates the sum of lives covered under the plan for each day of
the plan year ending December 31, 2013 as 3,285,000. The average
number of lives covered under the plan for the plan year ending
December 31, 2013, is 3,285,000 divided by 365, or 9,000. To
calculate the section 4376 fee for the plan under paragraph (c)(1)
of this section for the plan year ending December 31, 2013, Employer
A must determine the applicable dollar amount under paragraph (c)(3)
of this section and multiply that amount by 9,000.
(iv) Snapshot method--(A) In general. A plan sponsor may determine
the average number of lives covered under an applicable self-insured
health plan for a plan year by adding the totals of lives covered on a
date during the first, second, or third month of each quarter of the
plan year (or more dates in each quarter if an equal number of dates is
used in each quarter), and dividing that total by the number of dates
on which a count was made. For purposes of this paragraph (c)(2)(iv),
each date used for the second, third and fourth quarter must be within
three days of the date in that quarter that corresponds to the date
used for the first quarter, and all dates used must fall within the
same plan year. If a plan sponsor uses multiple dates for the first
quarter, the plan sponsor must use dates in the second, third, and
fourth quarters that correspond to each of the dates used for the first
quarter or are within three days of such corresponding dates, and all
dates used must fall within the same plan year. The 30th and 31st day
of a month are treated as the last day of the month for purposes of
determining the corresponding date for any month that has fewer than 31
days (for example, if either March 30 or March 31 is used for a
calendar year plan, June 30 is the corresponding date for the second
quarter). For purposes of this paragraph (c)(2)(iv), the number of
lives covered on a designated date may be determined using either the
snapshot factor method described in paragraph (c)(2)(iv)(B) of this
section or the snapshot count method described in paragraph
(c)(2)(iv)(C) of this section.
(B) Snapshot factor method. Under the snapshot factor method, the
number of lives covered on a date is equal to the sum of--
(i) The number of participants with self-only coverage on that
date; plus
(ii) The number of participants with coverage other than self-only
coverage on the date multiplied by 2.35.
(C) Snapshot count method. Under the snapshot count method, the
number of lives covered on a date equals the actual number of lives
covered on the designated date.
(D) Examples. The following examples illustrate the principles of
paragraphs (c)(1) and (c)(2)(iv) of this section:
Example 1. (i) Employer B is the plan sponsor of the Employer B
Self-Insured Health Plan, which has a calendar year plan year.
Employer B uses the snapshot method to determine the average number
of lives covered under the plan and uses the snapshot count method
to determine the number of lives covered on a day in the first month
of each calendar quarter of the plan year.
(ii) On January 4, 2013, the Employer B Self-Insured Health Plan
covers 2,000 lives, on April 5, 2013, 2,100 lives, on July 5, 2013,
2,050 lives, and on October 4, 2013, 2,050 lives. Under the snapshot
method, Employer B must determine the average number of lives
covered under the Employer B Self-Insured Health Plan for the plan
year ending December 31, 2013, as 8,200 (2,000 + 2,100 + 2,050 +
2,050) divided by 4, or 2,050. To calculate the section 4376 fee
under paragraph (c)(1) of this section for the plan year ending
December 31, 2013, Employer B must determine the applicable dollar
amount under paragraph (c)(3) of this section and multiply that
amount by 2,050.
Example 2. (i) Same facts as Example 1, except that for the 2014
plan year Employer B determines the number of lives covered that are
not covered by self-only coverage using the snapshot factor method
(that is, based on the number of participants with coverage other
than self-only coverage multiplied by 2.35 (the factor set forth in
(c)(2)(iv) of this section)).
(ii) On January 10, 2014, Employer B Self-Insured Health Plan
provides self-only coverage to 600 employees and other than self-
only coverage to 800 employees. On April 11, 2014, Employer B Self-
Insured Health Plan provides self-only coverage to 608 employees and
other than self-only coverage to 800 employees. On July 11, 2014 and
October 10, 2014, Employer B Self-Insured Health Plan provides self-
only coverage to 610 employees and other than self-only coverage to
809 employees.
[[Page 72734]]
(iii) Under the snapshot factor method, Employer B must
determine the average number of lives covered under the Employer B
Self-Insured Health Plan for the plan year ending December 31, 2014
as 9,988 [(600 + (800 x 2.35)) + (608 + (800 x 2.35)) + (610 + (809
x 2.35)) + (610 + (809 x 2.35))] divided by 4, or 2,497. To
calculate the section 4376 fee under paragraph (c)(1) of this
section for the plan year ending December 31, 2014, Employer B must
determine the applicable dollar amount under paragraph (c)(3) of
this section and multiply that amount by 2,497.
(v) Form 5500 method--(A) Calculation method. A plan sponsor may
determine the average number of lives covered under a plan for a plan
year based on the number of participants reported on the Form 5500,
``Annual Return/Report of Employee Benefit Plan,'' or the Form 5500-SF,
``Short Form Annual Return/Report of Small Employee Benefit Plan,''
that is filed for the applicable self-insured health plan for that plan
year, provided that the Form 5500 or Form 5500-SF is filed no later
than the due date for the fee imposed by section 4376 for that plan
year. For purposes of this paragraph (c)(2)(v), the average number of
lives covered under the plan for the plan year for a plan offering only
self-only coverage equals the sum of the total participants covered at
the beginning and the end of the plan year, as reported on the Form
5500 or Form 5500-SF for the applicable self-insured health plan,
divided by 2. For purposes of this paragraph (c)(2)(v), the average
number of lives covered under the plan for the plan year for a plan
offering self-only coverage and coverage other than self-only coverage
equals the sum of total participants covered at the beginning and the
end of the plan year, as reported on the Form 5500 or Form 5500-SF
filed for the applicable self-insured health plan.
(B) Examples. The following examples illustrate the principles of
paragraphs (c)(1) and (c)(2)(v)(A) of this section:
Example 1. Employer C is the plan sponsor of the Employer C
Self-Insured Health Plan, which has a calendar year plan year ending
on December 31, 2013. Employer C is required to file a Form 5500 for
the plan for the 2013 plan year by July 31, 2014. However, on July
30, 2014, Employer C obtains an automatic 2\1/2\ month extension for
filing the 2013 Form 5500. Employer C files the 2013 Form 5500 on
September 30, 2014 (that is, before the October 15 extended due
date). Employer C is not eligible to use the Form 5500 method to
determine the average number of lives covered under Plan C for the
plan year ending on December 31, 2013, because the 2013 Form 5500
was not filed by the original due date (that is, by July 31, 2014)
for the return that reports liability for the fee imposed by section
4376 for the 2013 plan year.
Example 2. Same facts as Example 1, except that the Employer C
Self-Insured Health Plan has a fiscal year plan year ending on July
31, 2013, and offers only self-only coverage. Employer C files a
Form 5500 for the Employer C Self-Insured Health Plan for the plan
year ending July 31, 2013 (the 2012 Form 5500), on the extended due
date for filing the 2012 Form 5500 (May 15, 2014). Employer C is
eligible to use the Form 5500 method to determine the average number
of lives covered under Plan C for the plan year ending on July 31,
2013, because the 2012 Form 5500 had been filed by the due date for
the return that reports liability for the fee imposed by section
4376 for that plan year (July 31, 2014).
Example 3. Same facts as Example 2, provided further that the
Employer C Self-Insured Health Plan 2012 Form 5500 reports 4,000
plan participants on the first day of the plan year and 4,200 plan
participants on the last day of the 2012 plan year. For purposes of
calculating the fee under section 4376 using the Form 5500 method,
Employer C must treat the number of lives covered for the plan year
ending July 31, 2013, as equal to the sum of 4,000 and 4,200 or
8,200, divided by 2, or 4,100. To calculate the section 4376 fee
under paragraph (c)(1) of this section for the plan year ending July
31, 2013, Employer C must determine the applicable dollar amount
under paragraph (c)(3) of this section and multiply that amount by
4,100.
Example 4. Same facts as Example 3, except that the Employer C
Self-Insured Health plan offers self-only coverage and family
coverage. For purposes of calculating the fee under section 4376
using the Form 5500 method, Employer C must treat the number of
lives covered for the plan year ending July 31, 2013, as equal to
the sum of 4,000 and 4,200, or 8,200. To calculate the section 4376
fee under paragraph (c)(1) of this section for the plan year ending
July 31, 2013, Employer C must determine the applicable dollar
amount under paragraph (c)(3) of this section and multiply that
amount by 8,200.
(vi) Special rule for health FSAs and HRAs. For purposes of this
section, if a plan sponsor does not establish or maintain an applicable
self-insured health plan other than a health flexible spending
arrangement (health FSA) (as described in section 106(c)(2)) or a
health reimbursement arrangement (as described in Notice 2002-45 (2002-
2 CB 93)) (HRA), the plan sponsor may treat each participant's health
FSA or HRA as covering a single life (and therefore the plan sponsor is
not required to include as lives covered any spouse, dependent, or
other beneficiary of the individual participant in the health FSA or
HRA, as applicable). If a health FSA or HRA that is an applicable self-
insured health plan has the same plan sponsor and plan year as another
applicable self-insured health plan other than a health FSA or HRA, the
two arrangements may be treated as a single plan under paragraph
(b)(1)(iii) of this section. However, the special counting rule in this
paragraph applies only for purposes of the health FSA or HRA and,
therefore, applies only for purposes of the participants in the health
FSA or HRA that do not participate in the other applicable self-insured
health plan. The participants in the health FSA or HRA that participate
in the other applicable self-insured health plan will be counted in
accordance with the method applied for counting lives covered under
that other plan as described in paragraph (b)(2)(i) of this section.
See Sec. 601.601(d)(2) of this chapter.
(vii) Special rule for lives covered solely by the fully-insured
options under an applicable self-insured health plan--(A) In general.
If an applicable self-insured health plan provides accident and health
coverage through fully-insured options and self-insured options, the
plan sponsor is permitted to disregard the lives that are covered
solely under the fully-insured options in determining the lives covered
taken into account for the actual count method (described in paragraph
(c)(2)(iii) of this section), the snapshot method (described in
paragraph (c)(2)(iv) of this section), and the Form 5500 method
(described in paragraph (c)(2)(v) of this section).
(B) Example. The following example illustrates the principles of
paragraph (c)(2)(vii) of this section:
Example. (i) Employer C is the plan sponsor of the Employer C
Health Plan (Plan P). The Plan offers self-only or family health and
accident coverage under fully-insured or self-insured options. On
June 28, 2015, Employer C files a Form 5500 for Plan P for the plan
year ending December 31, 2014 indicating: (1) a total of 4,000 plan
participants on the first day of the 2014 plan year; and (2) a total
of 4,200 plan participants on the last day of the plan year.
Employer C determines that there were 3,000 plan participants (and
their families, as applicable) covered under the fully-insured
option offered under the plan on the first day of the 2014 plan
year, and 2,900 plan participants (and their families, as
applicable) covered under the fully-insured option on the last day
of the 2014 plan year. Employer C uses the Form 5500 method to
calculate the number of lives covered for the 2014 plan year.
(ii) Pursuant to paragraph (c)(2)(vii) of this section, Employer
C determines the number of lives covered for the 2014 plan year as:
the sum of 1,000 (4,000 total participants on the first day of the
plan year--3,000 participants covered by the specified health
insurance policy on the first day of the plan year) and 1,300 (4,200
total participants--2,900 participants covered by the specified
health insurance policy on the first day of the plan year), or
2,300. To calculate the section 4376 fee under paragraph (c)(1) of
this section for
[[Page 72735]]
the 2014 plan year, Employer C must determine the applicable dollar
amount under paragraph (c)(3) of this section and multiply that
amount by 2,300.
(viii) Special rule for the first year the fee is in effect.
Notwithstanding paragraph (c)(2)(i) of this section, for a plan year
beginning before July 11, 2012, and ending on or after October 1, 2012,
a plan sponsor may determine the average number of lives covered under
the plan for the plan year using any reasonable method.
(3) Applicable dollar amount. For a plan year ending on or after
October 1, 2012, and before October 1, 2013, the applicable dollar
amount is $1. For a plan year ending on or after October 1, 2013, and
before October 1, 2014, the applicable dollar amount is $2. For any
plan year ending in any Federal fiscal year beginning on or after
October 1, 2014, the applicable dollar amount is equal to the sum of--
(i) The applicable dollar amount for the plan year ending in the
previous Federal fiscal year; plus
(ii) The amount equal to the product of--
(A) The applicable dollar amount for the plan year ending in the
previous Federal fiscal year; and
(B) The percentage increase in the projected per capita amount of
the National Health Expenditures most recently released by the
Department of Health and Human Services before the beginning of the
Federal fiscal year.
(4) Examples. The following examples illustrate the principle of
paragraph (c)(3) of this section.
Example 1. (Calendar year plan). (i) Plan Sponsor C maintains
Plan X which has a calendar year plan year; the plan continues in
operation for the entire calendar years 2012 through 2019. Plan X is
an applicable self-insured health plan, within the meaning of Sec.
46.4376-1(b)(1), and Plan Sponsor C is liable for the fee imposed by
section 4376, determined in accordance with these regulations,
beginning with the 2012 plan year--the plan year beginning January
1, 2012, and ending December 31, 2012--and ending with the 2018 plan
year--the plan year beginning January 1, 2018, and ending December
31, 2018. In accordance with Sec. 40.6071(a)-1(c) of this chapter:
(ii) The first Form 720 that must be filed to report and pay the
fee imposed by section 4376 for Plan X covers the 2012 plan year
(January 1, 2012, through December 31, 2012) and must be filed no
later than July 31, 2013, and the fee reported on this form must be
calculated by multiplying the average number lives by $1 (the
applicable dollar amount in effect for plans with plan years
beginning on or after October 1, 2012, and before October 1, 2013);
and
(ii) The last Form 720 that must be filed to report and pay the
fee imposed by section 4376 for Plan X covers the 2018 plan year
(January 1, 2018, through December 31, 2018) and must be filed no
later than July 31, 2019, and the fee reported on this form must be
calculated using the applicable dollar amount in effect for plan
years ending on or after October 1, 2018, and before October 1,
2019.
Example 2. (Fiscal year plan). (i) Plan Sponsor B maintains Plan
W, which has a fiscal year plan year ending on July 31; the plan
continues in operation for the entire fiscal year plan years from
August 1, 2012, through July 31, 2019. Plan W is an applicable self-
insured health plan, within the meaning of Sec. 46.4376-1(b)(1),
and Plan Sponsor B is liable for the fee imposed by section 4376,
determined in accordance with these regulations, beginning with the
2012 plan year--the plan year beginning on August 1, 2012, and
ending on July 31, 2013--and ending with the 2018 plan year--plan
year beginning on August 1, 2018, and ending July 31, 2019. In
accordance with Sec. 40.6071(a)-1(c) of this chapter:
(ii) The first Form 720 that must be filed to report and pay the
fee imposed by section 4376 for Plan X covers the 2012 plan year
(August 1, 2012, through July 31, 2013) and must be filed no later
than July 31, 2014, and the fee reported on this form must be
calculated by multiplying the average number lives by $1 (the
applicable dollar amount in effect for plans with plans years
beginning on or after October 1, 2012, and before October 1, 2013);
and
(iii) The last Form 720 that must be filed to report and pay the
fee imposed by section 4376 for Plan X covers the 2018 plan year
(August 1, 2018, through July 31, 2019) and must be filed no later
than July 31, 2020, and the fee must be calculated using the
applicable dollar amount in effect for plan years ending on or after
October 1, 2018, and before October 1, 2019.
(d) Effective/Applicability date. This section applies for plan
years that end on or after October 1, 2012, and before October 1, 2019.
Sec. 46.4377-1 Definitions and special rules.
(a) Definitions. The following definitions apply for purposes of
sections 4375 and 4376 and Sec. Sec. 46.4375-1 and 46.4376-1.
(1) Accident and health coverage. The term accident and health
coverage means any coverage that, if provided by an insurance policy,
would cause such policy to be a specified health insurance policy (as
defined in section 4375(c) and Sec. 46.4375-1(b)(1)). Accident and
health coverage also includes coverage for an active employee, a former
employee, or a qualifying beneficiary that is continuation coverage
required under the Consolidated Omnibus Budget Reconciliation Act of
1985 (COBRA) or similar continuation coverage under other federal law
or under state law.
(2) Individual residing in the United States--(i) The term
individual residing in the United States means an individual with a
place of abode in the United States.
(ii) Determination of place of abode. For purposes of paragraph
(a)(2) of this section, an issuer or a plan sponsor may rely on the
most recent address on file with the issuer or plan sponsor and may
treat the primary insured and the primary insured's spouse, dependents,
or other beneficiaries covered by the policy as having the same place
of abode. For this purpose, the primary insured is the individual
covered by the policy whose eligibility for coverage was not due to
that individual's status as the spouse, dependent, or other beneficiary
of another covered individual.
(3) United States. The term United States includes American Samoa,
Guam, the Northern Mariana Islands, Puerto Rico, the Virgin Islands,
and any other possession of the United States.
(4) Federal fiscal year. The term Federal fiscal year means the
year beginning on October 1 and ending on the following September 30.
(b) Treatment of exempt governmental programs--(1) In general. The
fees imposed by sections 4375 and 4376 do not apply to any covered life
under an exempt governmental program as defined in paragraph (b)(2) of
this section.
(2) Exempt governmental program. For purposes of this section,
exempt governmental program means any--
(i) Insurance program established under title XVIII of the Social
Security Act;
(ii) Medical assistance program established by title XIX or XXI of
the Social Security Act;
(iii) Program established by Federal law for providing medical care
(other than through insurance policies) to individuals (or their
spouses and dependents) by reason of such individuals being (or having
been) members of the Armed Forces of the United States; and
(iv) Program established by Federal law for providing medical care
(other than through insurance policies) to members of Indian tribes (as
defined in section 4(d) of the Indian Health Care Improvement Act).
(c) Effective/Applicability date. This section applies to all
policy and plan years that end on or after October 1, 2012, and before
October 1, 2019.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 12. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
[[Page 72736]]
0
Par. 13. In Sec. 602.101, paragraph (b) is amended by adding the
following entries in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR Part or section where indentified and described control No.
------------------------------------------------------------------------
* * * * *
46.4375-1............................................... 1545-2238
46.4376-1............................................... 1545-2238
* * * * * * *
------------------------------------------------------------------------
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: November 28, 2012.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2012-29325 Filed 12-5-12; 8:45 am]
BILLING CODE 4830-01-P