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Focus on Taxation: Healthcare Law Imposes Excise Tax on Employers & Insurance Carriers

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A new fee enacted through the new healthcare law to help fund the Patient-Centered Outcomes Research Institute (PCORI) must be paid by certain employers that sponsor self-insured health plans by July 31, 2013.

The first year of the fee is $1 per covered life per year, the second year the fee adjusts to $2 per covered life and then it's indexed to national health expenditures thereafter until it ends in 2019.
July 18, 2013

A new fee enacted through the new healthcare law to help fund the Patient-Centered Outcomes Research Institute (PCORI) must be paid by certain employers that sponsor self-insured health plans by July 31, 2013.

The first year of the fee is $1 per covered life per year, the second year the fee adjusts to $2 per covered life and then it's indexed to national health expenditures thereafter until it ends in 2019.

Purpose of the Fee
The assessed fees are to be contributed to the Patient-Centered Outcomes Research Trust Fund that will fund comparative effectiveness research. The research will evaluate and compare health outcomes and the clinical effectiveness, risks, and benefits of two or more medical treatments and/or services.

Who Pays the Fee
Under the IRS final rule, issuers and plan sponsors are responsible for paying the fee. For fully-insured health plans, the PCORI fee will be paid by the insurance company that issues the insurance policy.

Calculating the Fee
The fee is equal to the average number of covered lives for the policy year times the applicable dollar amount.

  • For policy years ending on or after Oct. 1, 2012, and before Oct. 1, 2013 – the applicable dollar amount is $1.
  • For policy years ending on or after Oct. 1, 2013, and before Oct. 1, 2014 - the applicable dollar amount is $2.
  • For policy years ending in any fiscal year beginning on or after Oct. 1, 2014 – the applicable dollar amount is the prior fiscal year's dollar amount plus an adjustment for medical inflation.

Filing and Payment Requirements
The fee must be reported on Form 720, Quarterly Federal Excise Tax Return. It is an annual fee so only one Form 720 is reported on the second calendar quarter Form 720, and must be filed by July 31.

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Recommended Action
Employers need to determine whether any self-insured health plans are maintained that are subject to the fee. Then they will need to determine how the average number of lives will be calculated for purposes of the fee and determine the due date for filing Form 720 and paying the fee based on the plan year-end.

Taxpayers should work closely with their tax advisor to assure proper compliance with the regulations. We encourage you to contact your RubinBrown engagement representative with any questions that you have.

 

Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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