Employee Benefits-IRS Issues Proposed Regulations On New Fee Imposed On Self-Insured Health Care Plans

On April 12, 2012, the Internal Revenue Service (the “IRS”) issued proposed regulations on the new fee imposed on self-insured health care plans. The proposed regulations are here.

The fee is governed by section 4376 of the Internal Revenue Code (the “Code”), and works as follows under that Code section. The fee is imposed 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. 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 for the plan year. The fee may be increased, for plan years ending on or after October 1, 2014, based on increases in the projected per capita amount of national health expenditures.

The fee is paid by the “plan sponsor”, generally defined as (1) the employer in the case of a plan established or maintained by a single employer, (2) the employee organization in the case of a plan established or maintained by an employee organization or (3) the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan, in the case of (a) a plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, (b) a multiple employer welfare arrangement (as defined in section 3(40) of ERISA) (a MEWA”), or (c) a voluntary employees’ beneficiary association described in section 501(c)(9) of the Code (a “VEBA”).

An “applicable self-insured health plan” is any plan which provides accident or health coverage, if (1) any portion of the coverage is provided other than through an insurance policy and (2) the plan is established or maintained, generally, by (a) one or more employers for the benefit of their employees or former employees, (b) 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) a VEBA, or (e) a MEWA not described above.

Author’s Comment: This fee is found in section 4376 of the Code, which was added to the Code by the Patient Protection and Affordable Care Act (“PPACA”). The fate of PPACA, and thus the fee, will depend on a decision of the U.S. Supreme Court, which will probably be issued in June. Stay tuned.