Health & Welfare Notes

Vol. 18, Issue 1    January/February 2013

Patient-Centered Outcomes Research Institute Fees – PPACA Section 6301 amended Title XI of the Social Security Act to establish the Patient‑Centered Outcomes Research Institute (PCORI).  PCORI will generally conduct research to evaluate and compare the clinical effectiveness, risks and benefits of various medical treatments, services, procedures, drugs, and other strategies that treat, manage, diagnose or prevent illness or injury. PPACA also amended the IRC (Code) by adding Sections 4375 and 4376 to create the Patient‑Centered Outcomes Research Trust Fund to fund the Institute, and to impose new annual fees on health insurers and sponsors of self‑insured health plans to help fund the Trust Fund.  On December 5, 2012, the IRS released final regulations regarding the payment of these fees.  The PCORI fee will first be assessed for policy or plan years ending on or after October 1, 2012.  The fee will not be assessed for plan years ending after September 30, 2019.

PCORI Fees –  For the first year the fee is assessed (i.e., policy and plan years ending on or after October 1, 2012 and before October 1, 2013), the fee is $1 multiplied by the average number of covered lives. For the second assessment year (i.e., policy and plan years ending on after October 1, 2013 and before October 1, 2014), the fee increases to $2 multiplied by the average number of covered lives. For any plan year that ends on or after October 1, 2014, the fee may be increased based on the percentage increase in the projected per-capita amount of “national health expenditures” as most recently published by the Secretary of Health and Human Services before the beginning of such year.

Employers do not have to pay the fee for their insured health plans, but can expect to see their health insurers try to pass along this new expense.  Because Sections 4375 and 4376 are found in Subtitle D of the Code dealing with excise taxes, these “fees” are really excise taxes, and will be reported and paid by insurers and plan sponsors on an IRS excise tax form (Form 720)

Applicable Self‑Insured Health Plans – In general, the fee on self‑insured plans applies to plan sponsors of an “applicable self‑insured health plan.” The term “applicable self‑insured health plan” is broadly defined in part as a plan that provides accident and health coverage if any portion of the coverage is provided other than through an insurance policy and the plan is established or maintained by one or more employers for their employees or former employees, including retiree only plans.   The term does not, however, include plans that provide benefits which are HIPAA-excepted benefits including limited-scope dental and vision plans, onsite medical clinics, accident-only or disability‑only plans, and most flexible spending accounts (FSAs). It also does not include an employee assistance program (EAP), disease management program, or wellness program if the program does not provide significant benefits in the nature of medical care or treatment.

Payment of PCORI Fees – The final regulations confirm that plan sponsors will be required to report and pay the PCORI fee for a plan year no later than July 31 of the calendar year immediately following the last day of such plan year. This means that sponsors of calendar year plans or plans with plan years that began between October 1, 2011 and December 31, 2011 must make their initial payment of the PCORI fees by July 31, 2013. Plans with plan years beginning after January 1, 2012 but prior to October 1, 2012 will not have to report and pay the PCORI fee until July 31, 2014.  Form 720 (Quarterly Federal Excise Tax Return Form) will be used for this purpose. The final regulations also confirm that third parties cannot report or remit the fees on behalf of plan sponsors. The DOL has clarified that because the plan sponsor, and not the plan, is responsible for the PCORI fee, the fee is not generally a permissible expense of the plan under ERISA. The preamble to the Regulations states that additional guidance from the Department regarding the payment of PCORI fees will be forthcoming on its website, www.dol.gov/ebsa.  (McGuireWoods Legal Alert, December 17, 2012; Buck Consultants FYI, January 23, 2013).

Transitional Reinsurance Program Fees – The Affordable Care Act directs that a Transitional Reinsurance Program  be established in each State to help stabilize premiums for coverage in the individual market during the years 2014 through 2016 and requires payment by insurers and plan sponsors to fund the Program. The fee or contribution, uniform  nationally, is payable by insured and self-insured health plans and is scheduled to last for three years: 2014, 2015, and 2016. The fees for insured plans will be paid by the insurance carrier (with the cost passed along to the subscriber).  Regulations proposed by the Department of Health and Human Services (HHS) to implement the Transitional Reinsurance Program, published in the Federal Register on December 7, 2012, specify that self‑insured group health plans are liable for the contributions, although a plan may utilize a third‑party administrator or administrative‑services‑only contractor for transfer of the contributions to HHS.

The proposed fee for 2014 is $5.25 per person per month, or $63 per person on an annual basis. This fee is scheduled to decrease in 2015 ($42 per person annually) and 2016 ($26 per person annually).   We understand “per person” includes covered spouses and dependents.

The proposed regulations provide that HHS will collect the reinsurance fees on an annual basis.  By November 15 of each year, starting in 2014, the contributing entity must submit the number of covered lives subject to the fee for that calendar year.  HHS will then notify the contributing entity of the total fee to be paid within 15 days of the submission, or by December 15, if later. The contributing entity must then submit its payment to HHS within 30 days of receiving notice of the amount due.

HIPAA -Final Regulations Require Changes – On January 25, 2013, the Office for Civil Rights (OCR) of the Department of Health and Human Services (HHS) published in the Federal Register a final rule (Final Rule) which implements the amendment to HIPAA made by the Health Information Technology for Economic and Clinical Health Act (the HITECH Act) and the Genetic Information Nondiscrimination Act (GINA). The effective date of the Final Rule is March 26, 2013 and covered entities and business associates must comply by September 23, 2013.

Generally, the Final Rule modifies the HIPAA privacy, security, and enforcement rules to: incorporate increased and tiered monetary penalties and expanded enforcement structure of the HITECH Act; make business associates directly liable for compliance with certain privacy and security rules; modify the rules for breach notification; require modifications to notices of privacy practices; strengthen limits on use and sale of protected health information; expand rights to electronic copies of health information and restrict disclosures to health plans where the individual has paid for the treatment; and adopt additional HITECH Act provisions.  The Final Rule also modifies the HIPAA privacy rule to strengthen and implement the privacy protections for genetic information under GINA.

The Final Rule adopts the increased and tiered civil money penalty structure set out in the HITECH Act, creating significant impetus for group health plan sponsors and other covered entities to exercise diligence in using and disclosing protected health information.

The Final Rule requires HHS to formally investigate complaints of violations due to willful neglect, and impose civil money penalties upon finding such violations; makes business associates of covered entities directly liable for civil money penalties for violations of certain of the HIPAA rules; requires HHS to determine civil penalty amounts based on the nature and extent of harm resulting from a violation; and provides that HHS’s authority to impose civil penalties will be barred only to the extent criminal penalties have been imposed.

Action highlights:

• Employers, health plans, providers and their business associates must be aware that the expanded penalty structure of HIPAA is now fully in effect and these entities are directly liable for civil penalties for violations of the HIPAA requirements.
• Covered entities should review their operations to determine if any additional parties are business associates under the expanded definitions, and should revise their contractual agreements with these parties.
• Business associate agreements now in effect should be reviewed and revised and renegotiated if necessary.
• Policies and procedures must be reviewed and revised to incorporate the new standards for breach notifications and other rules, such as incorporating genetic information under the protections.
• Notices of Privacy Practices must be reviewed, revised, and distributed in a timely manner.

(Excerpts from HRS Insight, 2013, Issue 5)

Disclaimer – This newsletter’s purpose is to inform our clients and friends of recent legislative health care-related developments.  It is not intended, nor should it be used, as a substitute for specific legal advice.

Health and Welfare Notes is prepared four to six times annually and will accompany Retirement News.  If there are questions concerning the information discussed, call richard Gabriel associates and ask for Gabe Zinni, Karen Irwin, Cindy Swartz or Nancy Cunningham.