Code Section 4375
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 4375, 4376, 4377, and 9511 | 12/30/2012 | Patient Protection and Affordable Care Act | Patient-Centered Outcomes Research Trust Fund; Financing for Trust Fund | 2,649 |
Patient-Centered Outcomes Research Trust Fund; Financing for Trust Fund
Explanation of Provision
- Patient-Centered Outcomes Research Trust Fund
- Fee on insured and self-insured health plans
- Self-insured plans
- Other special rules
1. Patient-Centered Outcomes Research Trust Fund
Under new section 9511, there is established in the Treasury of the United States a trust fund, the Patient Centered Outcomes Research Trust Fund (‘‘PCORTF’’), to carry out the provisions in the Act relating to comparative effectiveness research. The PCORTF is funded in part from fees imposed on health plans under new sections 4375 through 4377.
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2. Fee on insured and self-insured health plans
Insured Plans
Under new section 4375, a fee is imposed on each specified health insurance policy. The fee is equal to two dollars (one dollar in the case of policy years ending during fiscal year 2013) multiplied by the average number of lives covered under the policy. For any policy year beginning after September 30, 2014, the dollar amount is equal to the sum of: (1) the dollar amount for policy years ending in the preceding fiscal year, plus (2) an amount equal to the product of (A) the dollar amount for policy years ending in the preceding fiscal year, multiplied by (B) the percentage increase in the projected per capita amount of National Health Expenditures, as most recently published by the Secretary before the beginning of the fiscal year. The issuer of the policy is liable for payment of the fee. A specified health insurance policy includes any accident or health insurance policy 806 issued with respect to individuals residing in the United States.807 An arrangement under which fixed payments of premiums are received as consideration for a person’s agreement to provide, or arrange for the provision of, accident or health coverage to residents of the United States, regardless of how such coverage is provided or arranged to be provided, is treated as a specified health insurance policy. The person agreeing to provide or arrange for the provision of coverage is treated as the issuer.
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3. Self-insured plans
In the case of an applicable self-insured health plan, new Code section 4376 imposes a fee equal to two dollars (one dollar in the case of policy years ending during fiscal year 2013) multiplied by the average number of lives covered under the plan. For any policy year beginning after September 30, 2014, the dollar amount is equal to the sum of: (1) the dollar amount for policy years ending in the preceding fiscal year, plus (2) an amount equal to the product of (A) the dollar amount for policy years ending in the preceding fiscal year, multiplied by (B) the percentage increase in the projected per capita amount of National Health Expenditures, as most recently published by the Secretary before the beginning of the fiscal year. The plan sponsor is liable for payment of the fee. For purposes of the provision, the plan sponsor is: the employer in the case of a plan established or maintained by a single employer or the employee organization in the case of a plan established or maintained by an employee organization. In the case of: (1) a plan established or maintained by two or more employers or jointly by one of more employers and one or more employee organizations, (2) a multiple employer welfare arrangement, or (3) a voluntary employees’ beneficiary association described in Code section 501(c)(9) (‘‘VEBA’’), the plan sponsor is 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 rural electric cooperative or a rural telephone cooperative, the plan sponsor is the cooperative or association.
Under the provision, an applicable self-insured health plan is any plan providing accident or health coverage if any portion of such coverage is provided other than through an insurance policy and such plan is established or maintained: (1) by one or more employers for the benefit of their employees or former employees, (2) by one or more employee organizations for the benefit of their members or former members, (3) jointly by one or more employers and one or more employee organizations for the benefit of employees or former employees, (4) by a VEBA, (5) by any organization described in section 501(c)(6) of the Code, or (6) in the case of a plan not previously described, by a multiple employer welfare arrangement (as defined in section 3(40) of ERISA, a rural electric cooperative (as defined in section 3(40)(B)(iv) of ERISA), or a rural telephone cooperative association (as defined in section 3(40)(B)(v) of ERISA).
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4. Other special rules
Governmental entities are generally not exempt from the fees imposed under the provision. There is an exception for exempt governmental programs including, Medicare, Medicaid, SCHIP, and any program established by Federal law for proving medical care (other than through insurance policies) to members of the Armed Forces, veterans, or members of Indian tribes.
No amount collected from the fee on health insurance and self-insured plans is covered over to any possession of the United States. For purposes of the Code’s procedure and administration rules, the fee imposed under the provision is treated as a tax. The fees imposed under new sections 4375 and 4376 do not apply to plan years ending after September 31, 2019.
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806- A specified health insurance policy does not include insurance if substantially all of the coverage provided under such policy consists of excepted benefits described in section 9832(c). Examples of excepted benefits described in section 9832(c) are coverage for only accident, or disability insurance, or any combination thereof; liability insurance, including general liability insurance and automobile liability insurance; workers’ compensation or similar insurance; automobile medical payment insurance; coverage for on-site medical clinics; limited scope dental or vision benefits; benefits for long term care, nursing home care, community based care, or any combination thereof; coverage only for a specified disease or illness; hospital indemnity or other fixed indemnity insurance; and Medicare supplemental coverage.
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807- Under the provision, the United States includes any possession of the United States.
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