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PPACA: IRS Proposes PCORI Fee Regulations

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The Internal Revenue Service (IRS), an arm of the U.S. Treasury Department, has started the official process of implementing the process of collecting the health plan fees that are supposed to fund a new Patient-Centered Outcomes Research Trust Fund.

The IRS is preparing to publish a notice of proposed rulemaking for the Patient-Centered Outcomes Research Institute (PCORI) funding mechanism Tuesday in the Federal Register.

The IRS is developing the regulations to carry out sections 4375 and 4376 of the Internal Revenue Code (IRC). The drafters of the Patient Protection and Affordable Care Act of 2010 (PPACA) created the PCORI provisions in an effort to create an entity that could sponsor, collect, organize and distribute research comparing the costs and benefits of various medical treatment options.

The Supreme Court is considering the constitutionality of several PPACA provisions. PPACA opponents are working in Congress to repeal the act, and more anti-PPACA suits are moving through the federal court system at the district court and appellate court level.

If PPACA takes effect on schedule and works as drafters expect, a health insurer or a self-insured group health plan will have to pay the government a $2 PCORI fee per covered life for each policy year ending on or after Oct. 1, 2013, and before Oct. 1, 2019. Insurers and plans would have to pay a $1 PCORI fee per covered life for policy years ending on or after Oct. 1, 2012, and before Oct. 1, 2013.

The government would exempt government plans, such as Medicaid plans, from having to pay the PCORI fee.

The fee could generate a total of about $2.6 billion in PCORI funding between now and 2019, according to the Congressional Budget Office.

To dispel fears that the “comparative effectiveness research” (CER) institute will be a care rationing “death panel,” PCORI is supposed to influence health care solely by publishing its findings and letting physicians and hospitals decide for themselves how to use the information. Insurers are not supposed to use PCORI’s work as the basis for making specific coverage decisions.

The IRS collected interested parties’ views on the PCORI trust fund fee in June 2011, when it issued IRS Notice 2011-35. In the notice, IRS officials asked how the PCORI fees should be calculated and paid, and what rules and safe harbor provisions might be needed.

IRS officials say in the preamble to the proposed regulations that they have used the comments to shape their approach to handling the PCORI fee.

For employers, for example, one concern will be coming up with the employee and dependent counts needed to calculate the fee payments.

The fee affects only policies “issued with respect to an individual residing in the United States,” officials say 

“Commentators requested a bright-line rule for determining whether an individual covered by a policy is residing in the United States,” officials say. “Many commentators suggested that issuers should be able to rely on the address on file for the primary insured to determine whether individuals covered by the policy are residing in the United States.”

The IRS acknowledged that the only residence information an employer has might relate to the insured worker, not to the dependents.

“Accordingly, the proposed regulations provide 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,” officials say.

Similarly, because the regulations needed to count covered lives are being issued so late, in the early years, “a plan sponsor may use any reasonable method to determine the average number of lives covered under the plan for purposes of calculating the fee,” officials say.

The officials say insurers and employers might have to start paying the PCORI fee before all relevant IRS guidance is available.

Because of that uncertainty, “if and to the extent future guidance is more restrictive than the guidance in these proposed regulations, the future guidance will be applied without retroactive effect,” officials say.

The proposed regulations would apply to policy and plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019.

The IRS expects to hold a hearing on the proposed regulations at 10 a.m. Aug. 8.