<nobr>Jun 15, 2011</nobr>

Treasury/IRS Request Comments on Implementation of Comparative Effectiveness Fee

The Department of Treasury and IRS recently released Notice 2011-35 concerning the implementation of the comparative effectiveness fee instituted by the Patient Protection and Affordable Care Act (ACA). The government has requested comments on how the relevant provisions of the fee requirements should be implemented. Comments are due by September 6, 2011.

A copy of the notice can be accessed by clicking the link below.

Notice 2011-35
http://www.irs.gov/pub/irs-drop/n-11-35.pdf

Background: The ACA established the Patient-Centered Outcomes Research Institute to advance comparative clinical effectiveness research. The Institute is funded in part by fees paid by insurers and sponsors of self-funded health plans. The fee itself is based on the average number of lives covered under the policy or plan. The fees are effective for policy and plan years ending after September 30, 2012, and are scheduled to sunset for policy years ending after September 30, 2019. The fee is $1 multiplied by the average number of covered lives under the policy or plan for the first year and then increases to $2 for the remainder of the period.

Although little detailed guidance is provided on which plans and policies will be subject to this fee, the notice does state that a policy will not be subject to the fee if substantially all of its coverage is of excepted benefits described in Internal Revenue Code Section 9832(c). No guidance is suggested on topics such as whether one participant may be counted multiple times if covered by more than one plan or whether programs such as employee assistance or wellness plans would be subject to the fee.

Comments Requested: The notice indicates that the government invites comments on how the fees should be determined and paid, including several possible rules and safe harbors. Among others, comments are requested with respect to:

• What reasonable methods may be used to calculate the "average number of lives covered under the policy;"


• Whether a safe harbor should be provided for issuers that must report the number of lives covered on the NAIC Supplemental Health Care Exhibit;


• How/whether the fee should apply to health flexible spending accounts that do not satisfy the requirements to be treated as an excepted benefit;


• Which health reimbursement accounts should be subject to the fee;


• What transition rules would be appropriate; and


• Whether employers treated as a single employer under IRC Section 414 should be treated as a single employer for these purposes.

The notice also asks for comments on how future guidance could reduce the administrative burden by providing for reasonable methods to determine the average number of lives covered under a self-insured plan. Specifically, they ask whether a safe harbor should be provided for computing the "average number of lives covered" using a formula based on the number of participants and one or more factors that account for the number of dependents.

Questions or comments on this issue should be addressed to Gretchen Young ( gyoung@eric.org )

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