Comparative Effectiveness Research (CER) Fees

One of the aims of the Affordable Care Act was to provide a resource to assist patients, clinicians, purchasers, and policy-makers in making informed health decisions. The law created a private, nonprofit corporation known as the Patient-Centered Outcomes Research Institute (PCORI). PCORI intends to achieve this goal by creating and managing a wide variety of effectiveness studies regarding the delivery of health care.

Money to pay for these studies will be raised by a Comparative Effectiveness Research Fee (CER). The CER fee was first assessed upon health insurers and plan sponsors of self-insured plans in 2012. CER fees will go into a trust to fund PCORI.

How Are CER Fees Determined?

The CER fee will be imposed for each plan year ending on or after September 30, 2012, and before October 1, 2019. CER fees are based on a dollar amount times the average number of lives covered:

      • $1 for plan years ending after September 30, 2012 and before October 1, 2013
      • $2 for plan years ending after September 30, 2013 and before October 1, 2014
      • For the following plan years, the fee will increase by the percentage increase of the National Health Expenditures determined by the Department of Health and Human Services

Because the CER fees are imposed on the plan sponsor, rather than the plan, the Department of Labor (DOL) initially concluded that paying these fees did not constitute a permissible expense of the plan under ERISA. However, the DOL has changed its stance and decided that Title 1 of ERISA does not prohibit a multi-employer plan’s joint board of trustees from paying the CER fee from assets of the plan.

Average Number of Lives Covered

For plan years beginning before July 11, 2012, and ending on or after October 1, 2012, the plan sponsor is allowed to use “any reasonable” method to find the average number of covered lives for the period. There are three acceptable methods to determine average number of lives covered for subsequent plan years.

      • The “Actual Count” method. This is a daily total of lives in the plan divided by the number of days in the plan year.
      • The “Snapshot” method. This method counts the average of all covered lives on a set number of days per quarter.
      • The “Form 5500” method. The average number of lives as reported on Form 5500 or 5500-SF at the beginning and end of the year.

Some plan combinations will result in double counting of lives and additional fees. For instance, if a group health plan consists of an insured medical benefit and a self-insured prescription drug benefit, both the insurer and the plan sponsor would pay the fees for the same group of covered lives.

Plan sponsors must annually file a Form 720 “Quarterly Federal Excise Tax Return” stating their fee liability, which must be paid by July 31 of the calendar year immediately following the last day of the plan year. Third parties will not be allowed to file returns or pay fees for plan sponsors. 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. However, these fees will likely be passed through to the employer through the premium.

Which Plans Are Subject To CER Fees?

Any accident or health insurance policy (including a policy under a group health plan) covering individuals residing in the United States, including:

      • Plans sponsored by church employers
      • Self-insured Medicare supplemental plans
      • Retiree coverage and retiree only plans
      • COBRA coverage
      • HRA plans
      • Governmental entities not specifically exempted

Some examples of plans not subject to the CER:

      • Stand-alone dental and vision plans
      • HSAs
      • HRAs integrated with other self-insured coverage offered by the same sponsor
      • Employee Assistance Programs
      • Disease Management Programs
      • Wellness Benefits that do not provide significant medical care benefits
      • Medicare
      • Medicaid
      • Children’s Health Insurance Program
      • Medicare Advantage
      • Federal programs to provide medical care (other than through insurance policies) to members of the Armed Forces of the United States or veterans, or their spouses and dependents
      • Federal programs for providing medical care (other than through insurance policies) to members of Indian tribes
Glocal Insurance Services is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Clients are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the clients’ business activities.