Plan sponsors of self-funded health plans and insurers of insured health plans must pay a fee to help fund the Patient-Centered Outcomes Research Trust Institute a new entity intended to advance comparative effectiveness research. The comparative effectiveness research (CER) fee is based on the average number of covered lives participating in the plan. The IRS issued proposed regulations on April 12, 2012, providing guidance on which policies, plans and plan sponsors are subject to the fee; how the fee is to be calculated; and, rules for depositing, paying, and return filing including electronic filing of returns.

The CER fee will be imposed for each plan year ending on or after October 1, 2012, and before October 1, 2019.The CER fee is a specified dollar amount times the average number of lives covered under the plan for the plan year. For plan years ending before October 1, 2013, the specified dollar amount is $1 ; for plan years ending before October 1, 2014, the specified dollar amount is $2; for plan years ending on or after October 1, 2014, the $2 amount will be increased each year based on the projected per capita amount of National Health Expenditures.

The CER fee does not apply to HIPAA Excepted Benefits, such as stand-alone dental and vision plans and most Health FSAs. The fee also does not apply to Health Savings Accounts, Health Reimbursement Arrangements (HRAs) integrated with other self-insured coverage offered by the same sponsor, and, Employee Assistance Programs (EAPs), disease management programs and wellness programs that do not provide significant benefits in the nature of medical care or treatment. To learn more about which benefits qualify as HIPAA Excepted, click here.

The CER fee must be paid for each "applicable self-insured health plan", which includes any plan providing accident or health coverage, regardless of size. This includes ERISA plans, and plans sponsored by church employers, federal, State and local government employers and Indian tribal government employers. HRA plans not integrated with another applicable self-insured health plan that provides major medical coverage, and a Health FSA that does not satisfy the requirements to be treated as an Excepted benefit are subject to the CER fee. Significantly, stand-alone plans that only cover retirees are subject to the CER fee, even though they are otherwise exempt from the Health Care Reform law requirements.

For plan years beginning before July 11, 2012 and ending on or after October 1, 2012, the proposed regulations indicate that a plan sponsor may use "any reasonable method" to determine the average number of covered lives. For all other plan years, the proposed regulations identify three methods for determining the average number of covered lives:

• The "actual count" method. Add the number of covered lives for each day of the plan year, then divide by the number of days in the plan year.

• The "snapshot" method. On the same date in each quarter (or more frequently), determine the number of covered lives, then divide by the number of dates on which a count was made. Sponsors may count covered lives on each snapshot date using either the actual count method (see above), or a factor method – the number of participants on each snapshot date with self-only coverage PLUS the number of participants on each snapshot date with coverage other than self-only coverage times 2.35.

• The "Form 5500" method. For a plan providing only self-only coverage, add the Form 5500-reported total participants at the beginning and end of the plan year, and divide by two. For a plan not limited to self-only coverage, add the Form 5500-reported total participants at the beginning and end of the plan year (in effect, using a factor of 2.0).

The CER fee is reported and paid once per year on the Form 720 to the IRS. Full payment of the CER fee is required by the July 31st due date of the Form 720. Plan sponsors of self-insured plans must file by July 31st for the plan year ending during the preceding calendar year.

The proposed regulations establish similar rules for health insurance carriers covering members under an insured policy. If an employer has fully-insured coverage, the carrier and not the plan sponsor is responsible for determining and paying the CER fees for members covered under the insurance policy.

American Fidelity Assurance Company does not provide tax or legal advice.