Why All Businesses Need an Insurance Broker

“Why do I need a broker?” This is a question that surprisingly gets asked more than you would expect.  In today’s society of consumerism, the internet, and “do it yourself” mentality, tied with the desire to save money, this is a valid question. I would ask in turn – would you go to court without legal representation? Of course not.  It makes financial sense to use a broker as in most cases, you do not get charged for their services. Typically brokers are paid by the insurance carrier, the one that you jointly decide best meets your needs as an employer.  More importantly, brokers protect your best interests as an objective third party. There is no specific financial incentive for brokers to decide on one insurance provider over another.

An insurance broker acts as an intermediary between you and your insurer, lessening the administrative burden for you and negating the need for you to weed through complex policy jargon. We bring over 200 years of training and experience and our insurance know-how, and our goal is to always find a policy that best suits your coverage needs at the best possible price. Brokers do the shopping and analysis on your behalf, saving you the time of plodding through quotes from various carriers and trying to determine the optimal solution. We provide impartial advice based on the client’s unique situation.

Some of the benefits of using an insurance broker are as follows:

  • We review, listen, and understand to what you are trying to accomplish
  • We search the entire marketplace looking for the best coverage at the most affordable price
  • Once we find the ideal coverage, we review and discuss with you the cost, coverages, and exclusions in simple language so there are no misunderstandings
  • We walk you through the appropriate paperwork and submit it on your behalf to the insurance company
  • Once we have approval, we continually assist and advise you throughout the year to ensure you are getting the most from your plan
  • We assist with issues like billing and claims questions
  • We have compliance experts who will deal with issues like healthcare reform and COVID-19 regulations, ensuring your policies pivot as necessary
  • Come renewal time, we are there to negotiate for you and handle much of the legwork involved

These are very important considerations for you to take into account when deciding if a broker is right for you. The alternative is to spend a lot of your own time educating yourself, taking away valuable time from your day job and family. Insurance brokers go through strict educational and licensing requirements and have significant knowledge in the industry. Our deep understanding of your local market and the players involved ultimately yield enhanced, cost-effective coverage for you.

All that said, it’s important to note that not all brokers are the same. Some have specialized services and products or are focused on specific markets.  For example, there are brokers with expertise in the property and casualty or life insurance areas but that just dabble in health insurance. Today some payroll companies are even offering employee benefit services as well but again, their bread and butter is payroll, not benefits. To offer an analogy – you would not go to a foot doctor to address a heart condition, so make sure your broker’s core competencies are the ones you need.

In summary, your insurance needs are best met by a broker who works for you and not by an insurance company, who have their own interests to look out for. Brokers yield more choices, usually at a much lower cost to you and your business. Unless you happen to be an expert in insurance plans, why risk the headache and lose the resources needed to do it on your own? Further, a consultative broker like Spring will take the time to truly understand your business so we can constantly be on the lookout for new and innovative solutions that will align with your objectives.

People are typically the largest investment a company makes. Taking care of those people through employee benefits is a niche area of your business, and you need an insurance broker who has the training and expertise necessary in today’s complicated and competitive marketplace. Spring’s approach to brokerage is collaborative and strategic, but we ultimately remove the legwork for you and ensure you have the best plan options available.

DOL Issues Updated FFCRA Regulations In Light Of Recent Federal Court Decision

On September 11, 2020, the U.S. Department of Labor (“DOL”) released a temporary rule updating certain FFCRA regulations.  The temporary rule is scheduled to be published on September 16, 2020, and will be effective immediately through the expiration of the FFCRA’s paid leave provisions on December 31, 2020.

COVID-19 law

The temporary rule updates FFCRA regulations issued in April 2020 in response to a recent federal District Court decision which found four portions of the initial regulations invalid:  provisions related to whether the FFCRA applies if employers do not have work available for employees; the timing for which employees must request the need for leave; the definition of health care provider; and the availability of intermittent leave.

While many anticipated that the DOL would appeal the decision, the DOL elected to reaffirm and clarify its position on some of these issues, while choosing to revise or update others. Thus, while the court’s order was limited to companies operating in New York (or potentially only those in the Southern District of New York), the DOL’s revisions to the regulations apply to all employers subject to the FFCRA (inside and outside New York).

The District Court’s order and the updated regulations are discussed in more detail below.

New York Federal District Court Decision

Soon after the FFCRA regulations were implemented, the State of New York sued the DOL in the United Stated District Court for the Southern District of New York claiming the DOL exceeded its authority when it implemented several provisions of the FFCRA regulations. The District Court agreed in part and, in August, the court issued an order invalidating several portions of the FFCRA regulations.

  • Work Availability Requirement – The original regulations limited the availability of emergency paid sick leave and expanded FMLA leave to certain situations where theemployer’s business is open or the employer has work for the employee, but employee is unable to work due to a COVID-19 qualifying reason.  The court vacated this requirement, making the FFCRA available even if the employer does not have work for the employee, such as situations where the employee is furloughed or the business is closed.
  • Documentation – The FFCRA statute requires employees to notify an employer of the need for leave “after the first workday” during which an employee requires paid sick time; however, the initial FFCRA regulations required documentation to be provided to the employer before any sick time is taken. The court determined this was beyond the scope of the statute and vacated this requirement. The content of the documentation and the need for documentation was not eliminated, just the timing of when it must be provided.
  • Definition of Health Care Provider – The initial FFCRA regulations used an expansive definition of health care provider, which included individuals who work in support of health care operations, such as cleaning staff, food service professionals and cooks, maintenance workers, IT staff, or other administrative support staff who support health care operations.   The district court vacated the definition of health care provider, finding it overbroad.
  • Intermittent Leave – The initial regulations allowed employees to take intermittent leave in certain situations with employer approval/agreement.  The court found this inconsistent with the statute and rejected this aspect of the regulation as an impermissible limitation on the availability of intermittent leave.

Updated Regulations

In the updated regulations, DOL reaffirms its regulations related to the work availability and intermittent leave requirements, but provided further clarification or explanation of its regulations.  The DOL revised regulations related to the definition of “health care provider” and notice requirements.  The rationale and changes are discussed more fully below:

Work Availability

Specifically, for purposes of the work availability requirement, the DOL affirms that neither emergency paid sick leave nor expanded FMLA under the FFCRA may be taken unless the employer has work available for the employee (the “work availability” requirement).  The FFCRA statute provides that leave under the FFCRA is available if an employee is unable to work (or telework) “because of” or “due to” a qualifying reason under the FFCRA.  The DOL cites to U.S. Supreme Court authority that interprets “because of” or “due to” language to create a “but for” test or analysis. Thus, FFCRA leave must be the “but for” cause of the employee’s inability to work.  Furthermore, the DOL reasons that the plain meaning of the word “leave” in this context, and based on longstanding DOL interpretation, means that someone has to be absent from work at a time the employee would otherwise be working. Thus, the DOL stands by its original regulation and provides that an employee cannot take FFCRA leave if there was no work available from the employer for the employee to perform.

Finally, the DOL explains that this requirement was intended to apply for all qualifying reasons under the FFCRA, not just those that were initially listed in the original regulations.

Intermittent Leave

The FFCRA is silent about the availability of intermittent leave, but as the DOL notes in the preamble to the updated regulations, the DOL was given broad authority to develop rules under the law.  Thus, consistent with FMLA regulations, the DOL interpreted the availability of intermittent expanded FMLA leave for employees working onsite similar to how it applies for purposes of FMLA, which may also require employer approval.  For emergency paid sick leave, however, there is opportunity for spreading COVID-19 in the workplace.  Thus, it would be contrary to the purpose of the FFCRA to allow someone to take emergency paid sick leave intermittently (unless caring for a child whose regular day care provider is unavailable due to COVID-19). Therefore, for employees working on-site, the DOL reaffirms its decision to only allow intermittent leave for expanded FMLA leave purposes.  The DOL confirmed, however, as originally provided, that intermittent leave may be available for any FFCRA qualified reason if an employee is teleworking, as there is no risk the employee would spread COVID-19 at a worksite.  In any intermittent leave context, however, permission from the employer is still required.

Health Care Provider Definition

In an effort to ensure the public health system could maintain its necessary function during COVID-19 pandemic, the FFCRA allowed employers to exclude employees who are “health care providers” or “emergency responders” from eligibility for expanded FMLA leave and emergency paid sick leave.

The DOL took an expansive approach in defining “health care provider” in its initial FFCRA regulations to ensure health care operations would not be hampered, such as ensuring maintenance to health care facilities, trash collection, food services for hospital workers, and other similar services.  The District Court found this approach to be overly broad and, therefore, per the District Court’s order, the DOL opted to revise its definition of health care provider.  In the updated regulations, health care providers include employees who are health care providers under existing FMLA regulations and “any other employee who is capable of providing health care services such as diagnostic services, preventive services, treatment services, and other services that are integrated with and necessary to the provision of patient care and, if not provided would adversely impact patient care.”

This could include a variety of health care practitioners other than doctors, including nurses, nurse assistants, medical technicians, and laboratory technicians.  The preamble and rule provide numerous examples of what would constitute diagnostic, preventive or treatment services, and services integrated with these that are necessary for patient care, such as bathing, dressing, or feeding patients, among several others.  Food service professionals, IT professionals, building maintenance workers, HR professionals, or other individuals who do not provide health care services even though their work impacts health care services are no longer included in the definition of health care providers.

Employees falling within the new definition of health care provider can work in a variety of settings including, but not limited to, hospitals, clinics, doctor’s offices, medical schools, local health departments, nursing or retirement facilities, nursing homes, home health providers, laboratories, or pharmacies.

Notice of the Need for Leave

In the updated regulations, the DOL clarifies that notice of the need for emergency paid sick leave must be provided as soon as practicable (instead of before emergency sick leave is taken), which is consistent with the position the plaintiffs took when they challenged the original regulations.

Additionally, the DOL revised the regulations regarding notice of expanded FMLA leave.  For a foreseeable need to expanded FMLA leave, the employee must provide notice as soon as is practicable, which may mean the employee may have to provide advance notice of the need for leave if the facts and circumstances support prior notice.  Prior notice is not required for unforeseeable need for expanded FMLA leave.  Finally, the employer may require an employee to substantiate the need for leave as soon as practicable, which may be at the same time notice is provided.

The DOL also updated its FFCRA FAQ’s consistent with the updated regulations.

Conclusion

As mentioned previously, the DOL’s updated regulations impact all employers subject to the FFCRA, not just those with employees in New York. Thus, all impacted employers should familiarize themselves with the updated regulations and administer them accordingly moving forward.

To the extent an employer has employees impacted by the revised regulations, such as individuals previously included in the DOL’s broad definition of health care provider or employees who were denied emergency paid sick leave for failing to provide advance notice, they should consult directly with counsel to discuss how to address those specific situations.

About the Author.  This alert was prepared by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Danielle Capilla (danielle.capilla@aleragroup.com) with questions.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2020 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

Make Better Healthcare Decisions Through Claims Repricing

Background

As healthcare costs skyrocket, we know that employers struggle especially with high medical claims; how to fund them, mitigate them, and understand how they impact their plan. However, it has become increasingly difficult to accurately compare costs across different health plans and networks due to low transparency and complicated relationships among employers, brokers and bidders.

What is Claims Repricing?

This is where medical claims repricing comes into play. Using a third-party actuarial expert will enable a fair comparison through a rigorous data collection process and a systematic, objective analysis.

Repricing provides clients with an objective view of medical claims cost repricing based on actual claims data to help them pick the best network for containing costs. The purpose of repricing is to choose the best network providing desired provider coverage at the lowest available cost. It can be used to evaluate reference-based pricing as well as more traditional networks.

Why Claims Repricing?

Medical claims repricing helps clients compare medical claims costs across different health plans/networks on the same basis. It gives them a clear view of their options. The primary benefit of the repricing exercise is to provide an objective and actuarially sound analysis of claims cost comparison among different networks.

An accurate repricing analysis requires bidders to reprice each procedure performed by each provider according to their contracts. Without clear instructions and rigorous practice, bidders usually provide analysis on an aggregate level that does not reflect the demographics and experience of the client. Therefore, bidders’ self-reported results usually provide an apple-to-orange comparison and could be very misleading.

Medical Repricing Case Study

Client Challenges

Spring recently conducted this repricing process for a client in the dairy industry with over 1,500 employees and four manufacturing sites across different states. They were looking to understand if their carrier rates were competitive:

  • Would utilizing reference-based pricing (RBP) save costs?
  • Would it make sense to switch to a new carrier?
  • Did performance vary by state and major service category?

Spring Approach

Spring assists clients with choosing the right network. This will often be included in a formal Request for Proposal or handled more informally.  Spring facilitated the process using the following approach:

  • Requested detailed claim data from the incumbent including billed, allowed and paid amounts
  • Forwarded detailed instructions and claim data excluding allowed and paid amounts to prospective networks for repricing
  • Provided client with an independent actuarial repricing analysis by region and major service category

Our Solutions

Spring’s actuarial team conducted a rigorous medical repricing exercise and provided client with the following solutions:

  • Spring analyzed potential savings from utilizing a reference-based pricing vendor and determined that while moving to reference-based pricing would save on facility charges, the increase in other medical costs would outweigh these savings.
    • We did note that pairing the reference-based pricing solution for facility claims with a stronger non-facility network could potentially save money.
  • Spring also looked at claim charges for two other prospective networks and found that the incumbent carrier offers the highest overall discounts on claim charges, as illustrated below. In this case, switching entirely to either network will mean higher costs.


Medical Repricing

  • However, Spring provided further insight by state and major service category. Even though switching to bidder A means higher claim costs in total, the inpatient cost of bidder A was 26% lower than the incumbent in one state resulting in 10% overall savings for that state.

Medical Repricing

  • Spring recommended a national network solution carving out one state to maximize savings and minimize disruption.

 

Client Result

This analysis was valuable to the client in their consideration of carrier changes in certain regions:

  • Spring identified competitiveness of the incumbent carrier’s claim charges by state and service category
  • Spring’s analysis helped the client to make an informed decision not to move ahead with the reference-based pricing vendor as significant savings on facility costs were offset by increased physician and other medical costs
  • Recommended a new carrier in one state saving 10% of claim costs

As you can see, a repricing analysis can shed light on a slew of different factors at play within your network across different states and help you make the most cost-effective decision.

Spring Short-Listed for 6 Captive Review Awards

The past year has been busy and successful for the Spring team, and it shows! We are proud to announce that we have been named finalists for the 2020 US Captive Review Awards in the following categories:Captive Review Award Finalist

  • Captive Consultant of the Year
  • Employee Benefits Network
  • Captive Service Professional of the Year (Karin Landry)
  • Captive Innovation
  • Next Gen Initiative
  • Actuarial Firm

At Spring we work hard to consistently deliver creative, tailored solutions to clients; to stay abreast of industry trends and legislation; to contribute to the advancement and modernization of the industry; to expand our connections; to keep our eyes and our minds on both today and tomorrow; and provide sound actuarial guidance. We are honored to be recognized by Captive Review alongside so many thought leaders and trailblazers.

We look forward to the virtual awards ceremony in October, and hope to be popping some champagne!

Spring Launches 2nd Annual Healthcare Benchmarking Survey

Help Us Help You Benchmark Your Programs

We are excited to announce that we are in the midst of conducting our second annual healthcare benchmarking survey, and we’d love your input! The survey will yield a robust landscape of healthcare in the US and the different approaches employers are taking. Having this pulse on the market is all the more important as we continue to cope with the pandemic, and our data will help guide employers and vendors in pivoting their strategies accordingly. 

The survey, which can be accessed here, will be open through August 21, 2020 and will ask detailed questions about your company’s benefits. The contents of the survey include:

  • Background Questions
  • Benefits Offered
  • Disability
  • Life
  • Medical Plan Details
  • Pharmacy/Rx Plan Details
  • Retiree Medical
  • HSA/HRA
  • Health and Productivity
  • Dental
  • Vision
  • Retirement Benefits
  • Firmographics

It will take about 30 minutes to complete the survey. Please note that the survey will “remember” your responses, so you do not need to complete the survey in one sitting. Please be aware that there are sub-questions programmed into the survey that will only appear based on your responses to other questions. As such, the question numbering may not always be consecutive.

The data compiled will be summarized in a report that you can use to benchmark your company against others of similar size and industry. Please note that the data will be aggregated and individual responses will be kept confidential.

As an alternative to you completing the survey online, you can send us your company’s benefit information (e.g. your open enrollment kit) and we will fill in as much of the survey as we can, and come back to you to fill in any major gaps.

Please click the link below to begin and know that you are making a valuable contribution to the industry by doing so.

https://springconsulting.iad1.qualtrics.com/jfe/form/SV_6MCy4oC2ldOd4Y5?Source=Spring

 

Thank you! Please get in touch with any questions: insight@springgroup.com.

 

7 Predictions About How COVID-19 Will Change Healthcare

Covid-19 has taken the world by storm, and a myriad of markets are being impacted significantly. Businesses of all sizes are having to implement layoffs, terminations and furloughs to stay afloat, even with the federal relief being offered. At the crux of it all is health care: where we look to save the lives of our friends and loved ones, where we rely on accessibility to care, where we put our hopes for a cure.

Some would argue that health care in the U.S. was broken before the pandemic hit. Whether you agree with that or not, Covid-19 has no doubt highlighted gaps in the health care system and our abilities to handle a catastrophe. Health care providers, insurance carriers, employers and consumers will all be impacted even after the dust settles and the urgency diminishes. Here are seven ways we expect the health care markets to be affected.

1. Telemedicine is here to stay

While early adopters were already utilizing telemedicine, everyone has come to see the real value of it. Covid-19 has instilled in most people a certain degree of germaphobia that isn’t likely to go away any time soon, so many are wondering why they would go to a hospital or clinic to get a diagnosis, consultation or prescription when they don’t need to. That said, there is a demographic divide here: older generations, who often have more medical needs and appointments, are generally less comfortable switching to a digital format.

A great advantage of telemedicine is its ability to even the playing field in terms of access. It doesn’t matter if you live in Manhattan or the rural countryside, you can get the same care at a comparable price. This is extremely important as we see the ways in which Covid-19 has widened the socioeconomic divides in our country.

Telemedicine will rise in popularity for mental and behavioral health issues as well. This at a time when anxiety, depression and hardships are at a recent high. We also anticipate a boost in concierge telemedicine services as well.

An increase in telemedicine utilization may yield cost savings in the long term. In the short term, however, details are blurry in terms of pricing for visits. Further, some people now using telemedicine may not have otherwise seen a doctor at all, which skews utilization rates.

2. Deferred health costs

There are still a lot of unknowns regarding the impact Covid-19 will have on health insurance costs. At a high level, we estimate the net impact on the cost of medical claims over 12 months (April 4, 2020 to March 3, 2021) for an “average employer” to be an increase of 6%-8%, with most simulation results in the range of 2%-14%. Member demographics, location and industry will impact these projections. Further, our proprietary modeling shows that short-term drug spend is up, while short-term medical spend is down.

3. Cost shifting

The April unemployment rate for the U.S. was 14.7%. For comparison’s sake, the average unemployment rate for the year of 2019 was 3.6%. This uptick in unemployment will cause many who were previously covered under employer-sponsored health plans to move to governmental programs, such as Medicaid or Medicaid, if eligible, as these are much less costly than the employer-sponsored plan’s COBRA. In fact, commercial prices are often far more than 50% above Medicare payment rates according to the Medicare Payment Policy report to Congress. As the unemployed struggle with finances and find themselves in different income brackets, this shift will be significant.

As a result, health care facilities, which are already losing revenue due to the lack of elective procedures during the pandemic, will face further financial woes because they make less money from patients who are insured through governmental programs than they do for those insured commercially. Meanwhile, the commercial insurers (i.e., Cigna, Blue Cross Blue Shield), may actually save money amid the crisis due to a lower volume of claims (which goes back to the delay of elective procedures). This point is important for employers to be aware of as a negotiating tactic as they approach their plan renewal.

4. Expansion of coverage

With the government and carriers making exceptions to existing health plan policies through 2020, it is clear that we were dealing with critical coverage gaps, and we anticipate these areas to stay written into health plans. This goes for telemedicine benefits, counseling and mental health, extra prescription refills, relaxed utilization management requirements, specialized treatment, vaccines and changes to flexible spending account (FSA), health savings account (HSA) and health reimbursement arrangement (HRA) eligible purchases. The result will be an overall broader offering of benefits at a higher cost.

5. Push for more government involvement

Throughout the crisis, we have learned that employer-sponsored programs can only get us so far. Especially with election season upon us, we’re predicting a jump in support for programs like Medicare For All, where a public program better suited and funded for “unprecedented circumstances” would already be established. We can see this in the recent grant of additional funding for Medicaid.

6. Greater focus on claims control strategies

We expect employers to take a closer look at how they can minimize volatility and improve population health management. This might involve a stronger emphasis on risk management strategies and programs and advanced data and reporting procedures. More companies will be turning to consultants and actuaries for things like trend analyses, audits, repricing and projections. We anticipate that more businesses will be considering population health management programs as a long-term strategy for a healthier population that will, in turn, lower claims costs and lessen operational risk in the face of a similar catastrophe. More than ever, the key to a business’s success will stem in part from its ability to encourage and facilitate a healthy workforce.

7. Rethinking long-term care

Among the many hardships the world faces today lies the fear instilled in those who have loved ones in nursing homes or like facilities. Based on the observations from the current crisis, they are hubs for exposure and infection among an already high-risk population. We predict the health care system of the future to include an overhaul of home health care programs and assistance, as many will not feel comfortable in larger care facilities, something once commonplace.

In summary, the outlook for the health care industry post Covid-19 will be a mix of positives and negatives. We do expect a hike in plan costs and mentality shifts that move people beyond traditional health care. Further, organizations of all types will be carefully analyzing their health care spend and loss history, gaining a better understanding of where each dollar is going and if it can be spent more strategically. These factors and more will constitute what will gradually become the new normal.

Legal Alert: IRS Releases Updated Form 720 Used For PCORI Fee Payments

As we recently reported, on June 8, 2020, the IRS released the applicable PCORI fee for plan years ending between October 1, 2019 and September 30, 2020.  As we indicated in that alert, an updated Form 720 had not yet been released and, therefore, employers were advised to wait to file their PCORI fees until the COVID-19 lawIRS released the updated form.  Late last week, the IRS issued the updated Form 720, which is the April 2020 Revised form. Employers who sponsored a self-funded health plan, including an HRA, with a plan year that ended in 2019 should use this updated Form 720 to pay the PCORI fee by the July 31, 2020 deadline.

As a reminder:

  • The insurance carrier is responsible for paying the PCORI fee on behalf of a fully insured plan.
  • The employer is responsible for paying the fee on behalf of a self-insured plan, including an HRA.  In general, health FSAs are not subject to the PCORI fee.
  • Plans that ended between January 1, 2019 and September 30, 2019 use Form 720 to pay their PCORI fee of $2.45 per covered life.
  • Plans that ended between October 1, 2019 and December 31, 2019, use Form 720 to pay their PCORI fee of $2.54 per covered life.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions. © 2020 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

Legal Alert: PCORI Fees Due By July 31, 2020

REMINDER:

Employers that sponsor self-insured group health plans, including health reimbursement arrangements (HRAs) should keep in mind the upcoming July 31, 2020 deadline for paying fees that fund the Patient-Centered Outcomes Research Institute (PCORI).  As background, the PCORI was established as part of the Affordable Care Act (ACA) to conduct research to evaluate the effectiveness of medical treatments, procedures and strategies that treat, manage, diagnose or prevent illness or injury.  Under the ACA, most employer sponsors and insurers were required to pay PCORI fees until 2019, as it only applied to plan years ending on or before September 30, 2019.  However, the PCORI fee was extended to plan years ending on or before September 30, 2029 as part of the Further Consolidated Appropriations Act, 2020. COVID-19 law

The amount of PCORI fees due by employer sponsors and insurers is based upon the number of covered lives under each “applicable self-insured health plan” and “specified health insurance policy” (as defined by regulations) and the plan or policy year end date.  This year, employers will pay the fee for plan years ending in 2019.

For plan years that ended between January 1, 2019 and September 30, 2019, the fee is $2.45 per covered life and is due by July 31, 2020.

Since the extension of the PCORI fee deadline in December, issuers and sponsors of self-funded plans have been anxiously awaiting information from the IRS concerning the applicable PCORI fee for plans with plan years ending between October 1, 2019 and before October 1, 2020.  On June 8, 2020, the IRS Issued Notice 2020-44, which sets the applicable PCORI fee for these plans at $2.54 per covered life.  As of June 8, the IRS has not released the second quarter Form 720.  The second quarter Form 720 must be used to pay the PCORI fee.

In addition, Notice 2020-44 provides transition relief to issuers and self-funded plan sponsors for purposes of calculating the PCORI fee for plan years ending on or after October 1, 2019 and before October 1, 2020.  The rationale provided by the IRS is because issuers or plan sponsors may not have anticipated the need to identify the number of covered lives during this time period because they believed the PCORI fee expired on September 30, 2019.

Accordingly, the IRS provides that plan sponsors of impacted plans may continue to use the actual count, snapshot, or Form 5500 method to calculate the average number of lives and determine the applicable PCORI fee.  These methods are discussed more fully later in this alert.  Additionally, the IRS also provided that plan sponsors of impacted plans may opt to use a “reasonable method” to calculate the average number of covered lives for the plan year ending on or after October 1, 2019 (but before October 1, 2020) as long as the method is applied consistently for the duration of the plan year.

Therefore, for example, a plan year that ran from July 1, 2018 through June 30, 2019 will pay a fee of $2.45 per covered life and use the snapshot, Form 5500, or actual count method to determine the average number of covered lives.  On the other hand, calendar year 2019 plans will pay a fee of $2.54 per covered life and use the snapshot, actual count, Form 5000, or another reasonable method to calculate the average number of covered lives for the plan year.

The insurance carrier is responsible for paying the PCORI fee on behalf of a fully insured plan.  The employer is responsible for paying the fee on behalf of a self-insured plan, including an HRA.  In general, health FSAs are not subject to the PCORI fee.

Employers that sponsor self-insured group health plans must report and pay PCORI fees using IRS Form 720, Quarterly Federal Excise Tax Return.

NOTE: Employers must wait until the second quarter Form 720 is released by the IRS to pay the fee.  If this is an employer’s last PCORI payment and they do not expect to owe excise taxes that are reportable on Form 720 in future quarters (e.g., because the plan is terminating), they may check the “final return” box above Part I of Form 720.

Also note that because the PCORI fee is assessed on the plan sponsor of a self-insured plan, it generally should not be included in the premium equivalent rate that is developed for self-insured plans if the plan includes employee contributions.  However, an employer’s payment of PCORI fees is tax deductible as an ordinary and necessary business expense.

Historical Information for Prior Years

  • For plan years that ended between October 1, 2018 and December 31, 2018, the fee is $2.45 per covered life and was due by July 31, 2019.
  • For plan years that ended between January 1, 2018 and September 30, 2018, the fee is $2.39 per covered life and was due by July 31, 2019.
  • For plan years that ended between October 1, 2017 and December 31, 2017, the fee is $2.39 per covered life and was due by July 31, 2018.
  • For plan years that ended between January 1, 2017 and September 30, 2017, the fee is $2.26 per covered life and was due by July 31, 2018.
  • For plan years that ended between October 1, 2016 and December 31, 2016, the fee is $2.26 per covered life and was due by July 31, 2017.
  • For plan years that ended between January 1, 2016 and September 30, 2016, the fee is $2.17 per covered life and was due by July 31, 2017.
  • For plan years that ended between October 1, 2015 and December 31, 2015, the fee was $2.17 per covered life and was due by August 1, 2016.
  • For plan years that ended between January 1, 2015 and September 30, 2015, the fee was $2.08 per covered life and was due by August 1, 2016.
  • For plan years that ended between October 1, 2014 and December 31, 2014, the fee was $2.08 per covered life and was due by July 31, 2015.
  • For plan years that ended between January 1, 2014 and September 30, 2014, the fee was $2 per covered life and was due by July 31, 2015.
  • For plan years that ended between October 1, 2013 and December 31, 2013, the fee was $2 per covered life and was due by July 31, 2014.
  • For plan years that ended between January 1, 2013 and September 30, 2013, the fee was $1 per covered life and was due by July 31, 2014.
  • For plan years that ended between October 1, 2012 and December 31, 2012, the fee was $1 per covered life and was due by July 31, 2013.

Explanation of Counting Methods for Self-Insured Plans

As discussed above, plan sponsors of plans years ending before October 1, 2019 may choose from the below three methods below when determining the average number of lives covered by their plans. Plan sponsors with plan years ending on or after October 1, 2019 and before October 1, 2020 can use any of the three methods below or another reasonable method. The IRS did not specify a reasonable method that could be used, though employers should use good faith when determining the count.

Actual Count method.  Plan sponsors may calculate the sum of the lives covered for each day in the plan year and then divide that sum by the number of days in the year.

Snapshot method.  Plan sponsors may calculate the sum of the lives covered on one date in each quarter of the year (or an equal number of dates in each quarter) and then divide that number by the number of days on which a count was made. The number of lives covered on any one day may be determined by counting the actual number of lives covered on that day or by treating those with self-only coverage as one life and those with coverage other than self-only as 2.35 lives (the “Snapshot Factor method”).

Form 5500 method.  Sponsors of plans offering self-only coverage may add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, in each case as reported on Form 5500, and divide by 2.  For plans that offer more than self-only coverage, sponsors may simply add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, as reported on Form 5500.

Special rules for HRAs. The plan sponsor of an HRA may treat each participant’s HRA as covering a single covered life for counting purposes, and therefore, the plan sponsor is not required to count any spouse, dependent or other beneficiary of the participant. If the plan sponsor maintains another self-insured health plan with the same plan year, participants in the HRA who also participate in the other self-insured health plan only need to be counted once for purposes of determining the fees applicable to the self-insured plans.

 

About the Author.  This alert was prepared for Alera Group by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com

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