Fees on Health Insurance Policies And Self-Insured Plans for the Patient-Centered Outcomes Research...

7/29/2019 Fees on Health Insurance Policies And Self-Insured Plans for the Patient-Centered Outcomes Research TrustFund

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72721Federal Register / Vol. 77, No. 235 / Thursday, December 6, 2012/ Rules and Regulations

and adding the word, customs beforethe word, station; d. Paragraph (b)(1) is amended by: i. Removing the word Customs eachplace that it appears and adding in itsplace the term CBP; ii. Removing the word shall eachplace that it appears and adding in itsplace the word will;

iii. Removing the sum $2,000 andadding in its place the sum $2,500;and iv. Removing the word shall andadding in its place the word will; e. Paragraph (b)(2) is amended byremoving the word shall and addingin its place the word will, and byremoving the word Customs andadding in its place the term CBP; f. Paragraph (c) is amended by: i. Removing, in its heading and in itstext, the sum $2,000 and adding in itsplace the sum $2,500; ii. Removing the word Customseach place that it appears in the first

sentence and adding in its place theterm CBP; iii. Removing the words Customstreatment in the third sentence andadding in its place the words customstreatment; iv. Removing the words Customsoffice and adding in its place thewords CBP office; and v. Removing the word shall eachplace that it appears and adding in itsplace the term will; g. Paragraph (e)(1) is amended byremoving the word Customs in eachplace that it appears and adding in itsplace the term CBP, and by removingthe word shall and adding in its placethe word will; and h. Paragraph (e)(2) is amended by: i. Removing the words CustomsForm each place that it appears, in itsheading and its text, and adding in itsplace the words CBP Form; ii. Removing the words Customsofficer and adding in its place thewords CBP officer; iii. Removing the words Customspurposes and adding in its place thewords customs purposes; iv. Removing the word shall in thefirst sentence and adding in its place the

word must; and v. Removing the word shall in thesecond sentence and adding in its placethe word will.

145.31 [Amended]

22. Section 145.31 is amended byremoving the word shall and addingin its place the word will.

145.35 [Amended]

23. Section 145.35 is amended byremoving the sum $2,000 and addingin its place the sum $2,500.

145.41 [Amended]

24. Section 145.41 is amended byremoving the sum $2,000 and addingin its place the sum $2,500.

PART 148PERSONALDECLARATIONS AND EXEMPTIONS

25. The general authority citation forpart 148 is revised and the specificauthority citations for 148.51 and148.64 continue to read as follows:

Authority: 19 U.S.C. 66, 1496, 1498, 1624.The provisions of this part, except for subpartC, are also issued under 19 U.S.C. 1202(General Note 3(i), Harmonized TariffSchedule of the United States).

* * * * *Sections 148.43, 148.51, 148.63, 148.64,

148.74 also issued under 19 U.S.C. 1321;

* * * * *

148.23 [Amended]

26. In 148.23:

a. Paragraph (c)(1) is amended byremoving, in its heading and in its text,the sum $2,000 and adding in itsplace the sum $2,500;

b. Paragraph (c)(1) is further amendedby removing, in the text, the wordsSections VII, VIII, XI, and XII; Chapter94; and;

c. Paragraph (c)(2) is amended byremoving, in its heading and in its text,the sum $2,000 and adding in itsplace the sum $2,500; and

d. Paragraph (c)(2) is further amendedby removing the words Sections VII,VIII, XI, and XII; Chapter 94; and.

148.54 [Amended]

27. In 148.54

a. Paragraph (b) is amended byremoving the word shall and addingin its place the word must, and byremoving the sum $250 and adding inits place the sum$2,500; and

b. Paragraph (c) is amended byremoving the word shall each placethat it appears and adding in its placethe word will.

David V. Aguilar,

Deputy Commissioner, U.S. Customs andBorder Protection.

Approved: November 28, 2012.

Timothy E. Skud,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 201229193 Filed 12512; 8:45 am]

BILLING CODE 911114P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 40, 46, and 602

[TD 9602]

RIN 1545BK59

Fees on Health Insurance Policies andSelf-Insured Plans for the Patient-Centered Outcomes Research TrustFund

AGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Final regulations.

SUMMARY: This document contains finalregulations that implement and provideguidance on the fees imposed by thePatient Protection and Affordable CareAct on issuers of certain healthinsurance policies and plan sponsors ofcertain self-insured health plans to fund

the Patient-Centered Outcomes ResearchTrust Fund. These final regulationsaffect the issuers and plan sponsors thatare directed to pay those fees.

DATES: Effective Date:These regulationsare effective December 6, 2012.

Applicability Dates:These regulationsapply to policy and plan years endingon or after October 1, 2012, and beforeOctober 1, 2019.

FOR FURTHER INFORMATION CONTACT: R.Lisa Mojiri-Azad at (202) 6226080(regarding self-insured healtharrangements) or Rebecca L. Baxter at(202) 6223970 (regarding health

insurance policies).SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of informationcontained in these final regulations has

been reviewed and approved by theOffice of Management and Budget inaccordance with the PaperworkReduction Act of 1995 (44 U.S.C.3507(d)) under control number 15452238. The collections of information inthese final regulations are in 46.43751(c)(2)(iv) (use of the snapshot methodto calculate the fee under section 4375);

46.43751(c)(2)(v) (use of the NationalAssociation of Insurance Commissioners(NAIC) Supplemental Health CareExhibit to calculate the fee undersection 4375); 46.43751(c)(2)(vi) (useof certain state forms to calculate the feeunder section 4375); 46.43761(b)(2)(G) (identification or designationof a plan sponsor under the governingplan document for certain applicableself-insured health plans); 46.43761(c)(2)(iv) (use of snapshot method tocalculate the fee under section 4376);and 46.43761(c)(2)(v) (use of the

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72722 Federal Register / Vol. 77, No. 235 / Thursday, December 6, 2012/ Rules and Regulations

1The Department of Labor has advised that,because the fee is imposed on the plan sponsorunder section 4376 (instead of the plan), paying thePCORI fee generally does not constitute apermissible expense of the plan for purposes ofTitle I of the Employee Retirement Income SecurityAct (ERISA), although special circumstances mayexist in limited situations. The Department of Laborwill provide guidance in the near future on PCORIfee payments under Title I of ERISA on its Web site,www.dol.gov/ebsa.

Form 5500, Annual Return/Report ofEmployee Benefit Plan, or Form 5500SF, Short Form Annual Return/Reportof Employee Benefit Plan to calculatethe fee under section 4376).

An agency may not conduct orsponsor, and a person is not required torespond to, a collection of informationunless it displays a valid control

number assigned by the Office ofManagement and Budget.

Books or records relating to acollection of information must beretained as long as their contents may

become material in the administrationof any internal revenue law. Generally,tax returns and tax return informationare confidential, as required by 26U.S.C. 6103.

Background

This document contains finalamendments to 26 CFR part 40 (ExciseTax Procedural Regulations) and 26 CFRpart 46 (relating to excise taxes imposedon policies issued by foreign insurersand obligations not in registered form)to implement the requirements undersections 4375 through 4377 of theInternal Revenue Code (Code). TheTreasury Department and the IRS issuedproposed regulations under sections4375 through 4377 on April 17, 2012 (77FR 22,691). Sections 4375 and 4376 ofthe Code impose fees on issuers ofspecified health insurance policies andplan sponsors of applicable self-insuredhealth plans, and section 4377 containsspecial rules that apply to these issuersand plan sponsors with respect to these

fees. Sections 4375, 4376, and 4377were added to the Code by section 6301of the Patient Protection and AffordableCare Act (Affordable Care Act), PublicLaw 111148 (124 Stat. 119 (2010)).

The Affordable Care Act provides forthe establishment of the private,nonprofit corporation, the Patient-Centered Outcomes Research Institute(the Institute). Through research, theInstitute will assist patients, clinicians,purchasers, and policy-makers inmaking informed health decisions byadvancing the quality and relevance ofevidence-based medicine through the

synthesis and dissemination ofcomparative clinical effectivenessresearch findings. The statutespecifically prohibits the Secretary ofHealth and Human Services (HHS) fromusing the evidence or findings of theresearch conducted in determiningcoverage, reimbursement, or incentiveprograms unless it is through aniterative and transparent process whichincludes public comment and considersthe effect on subpopulations. Nothingunder this provision allows theSecretary of HHS to deny coverage of

items or services solely on the basis ofcomparative clinical effectivenessresearch. The statute provides that theInstitute will not develop a dollars-per-quality-life-year estimate as a thresholdto establish effective or recommendedcare.

Section 6301 of the Affordable CareAct amended the Code by adding new

section 9511 to establish the Patient-Centered Outcomes Research TrustFund (the Trust Fund), which is thefunding source for the Institute. Section6301 of the Affordable Care Act alsoadded new Code sections 4375, 4376,and 4377 to provide a funding sourcefor the Trust Fund that is to be financed,in part, by fees to be paid by issuers ofspecified health insurance policies andsponsors of applicable self-insuredhealth plans.

Statutory Provisions

Section 4375 imposes a fee on an

issuer of a specified health insurancepolicy for each policy year ending on orafter October 1, 2012, and beforeOctober 1, 2019. Under section 4375(a),the fee is two dollars (one dollar in thecase of policy years ending beforeOctober 1, 2013) multiplied by theaverage number of lives covered underthe policy. Under section 4375(d), forpolicy years ending on or after October1, 2014, the fee is increased based onincreases in the projected per capitaamount of National HealthExpenditures. Section 4375(b) providesthat the fee imposed by section 4375(a)

shall be paid by the issuer of the policy.Section 4375(c) defines a specifiedhealth insurance policyas any accidentor health insurance policy (including apolicy under a group health plan) issuedwith respect to individuals residing inthe United States. Section 4375(c)(2)excludes from a specified healthinsurance policy any insurance ifsubstantially all of its coverage is ofexcepted benefits described in section9832(c). Section 4375(c)(3) provides thata specified health insurance policyincludes any prepaid health coveragearrangement described in section4375(c)(3)(B). An arrangement isdescribed in section 4375(c)(3)(B) if,under the arrangement, fixed paymentsor premiums are received asconsideration for a persons agreementto provide or arrange for the provisionof accident or health coverage toresidents of the United States, regardlessof how the coverage is provided orarranged to be provided.

Section 4376 imposes a fee on a plansponsor of an applicable self-insuredhealth plan for each plan year ending onor after October 1, 2012, and before

October 1, 2019.1 Under section 4376(a),the fee is two dollars (one dollar forplan years ending before October 1,2013) multiplied by the average numberof lives covered under the plan. Undersection 4376(d), for plan years endingon or after October 1, 2014, the fee isincreased based on increases in theprojected per capita amount of National

Health Expenditures. Section 4376(b)(1)provides that the fee imposed by section4376(a) shall be paid by the plansponsor.

Section 4376(b)(2) defines aplansponsoras the employer in the case ofa plan established or maintained by asingle employer, or the employeeorganization in the case of a planestablished or maintained by anemployee organization. Section4376(b)(2) also provides that, in the caseof (1) a plan established or maintained

by two or more employers or jointly byone or more employers and one or more

employee organizations, (2) a multipleemployer welfare arrangement, or (3) avoluntary employees beneficiaryassociation described in section501(c)(9), the plan sponsor is theassociation, committee, joint board oftrustees, or other similar group ofrepresentatives of the parties whoestablish or maintain the plan. Section4376(b)(2) further provides that in thecase of a plan established or maintained

by a rural electric cooperative (asdefined in section 3(40)(B)(iv) of theEmployee Retirement Income SecurityAct of 1974 (ERISA)) or rural telephonecooperative association (as defined in

section 3(40)(B)(v) of ERISA), the plansponsor is the cooperative or associationthat established or maintained the plan.

Section 4376(c) defines an applicableself-insured health plan as any plan forproviding accident or health coverage ifany portion of the coverage is providedother than through an insurance policy,and the plan is established ormaintained (1) By one or moreemployers for the benefit of theiremployees or former employees, (2) byone or more employee organizations forthe benefit of their members or formermembers, (3) jointly by one or more

employers and one or more employeeorganizations for the benefit ofemployees or former employees, (4) bya voluntary employees beneficiary

http://www.dol.gov/ebsahttp://www.dol.gov/ebsahttp://www.dol.gov/ebsa


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association described in section501(c)(9), (5) by any organizationdescribed in section 501(c)(6), or (6) ifnot previously described, by a multipleemployer welfare arrangement (asdefined in section 3(40) of ERISA), arural electric cooperative (as defined insection 3(40)(B)(iv) of ERISA), or a ruraltelephone cooperative association (as

defined in section 3(40)(B)(v) of ERISA).Section 4377 includes definitions and

special rules that apply for purposes ofsections 4375 and 4376. Section4377(a)(1) defines accident and healthcoverage as any coverage that, ifprovided by an insurance policy, wouldcause the policy to be a specified healthinsurance policy (as defined in section4375(c)).

Section 4377(b)(1)(B) provides that[n]otwithstanding any other law or ruleof law, governmental entities shall not

be exempt from the fees imposed bysections 4375 and 4376 unless thepolicy or plan is an exemptgovernmental program. Section4377(b)(3) defines an exemptgovernmental program as (1) anyinsurance program established undertitle XVIII of the Social Security Act (42U.S.C. 1395 et. seq.) (Medicare), (2) themedical assistance program established

by title XIX (42 U.S.C. 1396 et. seq.)(Medicaid) or title XXI of the SocialSecurity Act (42 U.S.C. 1397aa et. seq.)(Childrens Health Insurance Program),(3) any program established by Federallaw for providing medical care (otherthan through insurance policies) toindividuals (or the spouses and

dependents thereof) by reason of suchindividuals being members of theArmed Forces of the United States orveterans, and (4) any programestablished by Federal law for providingmedical care (other than throughinsurance policies) to members ofIndian tribes (as defined in section 4(d)of the Indian Health Care ImprovementAct, 25 U.S.C. 1603). Under thesespecial rules, a governmental entity(including a federally recognized Indiantribal government) that is the plansponsor of an applicable self-insuredhealth plan that does not meet the

definition of an exempt governmentalprogram must pay the fee imposed bysection 4376.

Section 4377(c) provides that the feesimposed by sections 4375 and 4376 aretreated as taxes for purposes of subtitleF of the Code (sections 6001 through7874 that set forth the rules of federaltax procedure and administration).

Notice 201135 and ProposedRegulations

On June 8, 2011, the IRS releasedNotice 201135 (201125 IRB 879),

which requested comments on how thefees imposed under sections 4375 and4376 (referred to collectively as thePCORI fee) should be calculated andpaid, including possible rules and safeharbors. The Treasury Department andthe IRS received numerous comments inresponse to Notice 201135 andconsidered all comments in issuing

proposed regulations under sections4375, 4376, and 4377 (77 FR 22,691).The Treasury Department and the IRSreceived 26 written comments on theproposed regulations. Afterconsideration of the comments, thesefinal regulations adopt the provisions ofthe proposed regulations with certainmodifications, the most significant ofwhich are highlighted in the Summaryof Comments and Explanation ofRevisions. See 601.601(d)(2).

Summary of Comments andExplanation of Revisions

I. Health Insurance Policies Subject tothe PCORI Fee

Section 4375(a) imposes a fee on anissuer of a specified health insurancepolicy for each policy year ending on orafter October 1, 2012, and beforeOctober 1, 2019. Section 46.43751(b)(1)of these regulations defines a specifiedhealth insurance policyas any accidentand health insurance policy (includinga policy under a group health plan)issued with respect to individualsresiding in the United States. Section46.43751(b)(1)(ii) provides exceptionsto the term specified health insurance

policy. Section 4375(c)(2) and 46.43751(b)(1)(ii)(A) provide anexclusion for any insurance ifsubstantially all of its coverage is ofexcepted benefits described in section9832(c). While 46.43761(b)(ii)(B)excludes from the definition ofapplicable self-insured health plan anemployee assistance program (EAP),disease management program, orwellness program, if the program doesnot provide significant benefits in thenature of medical care or treatment, nosimilar exclusion was included in theproposed regulations for a specified

health insurance policy.One commentator explained thatCalifornia and Nevada regulate EAPsthat provide for four or morecounseling, treatment, or therapy visitsas insurance thereby requiring theissuance of an insurance policy. Thecommentator argued that in any otherstate, identical EAPs would be excludedfrom the definition of applicable self-insured plan and not subject to thePCORI fee. In recognition of the uniqueCalifornia and Nevada requirements thatcertain employee assistance plans be

treated as insurance, the commentatorasked that an exception be added to thedefinition of specified health insurancepolicy to exclude those EAPs. Inresponse to this comment, these finalregulations provide that the definitionof a specified health insurance policydoes not include any insurance policyto the extent that the policy provides for

an EAP, disease management program,or wellness program, if the programdoes not provide significant benefits inthe nature of medical care or treatment.No inference is intended whether thespecific health benefits cited by thecommentator constitute insignificant

benefits.

II. Retiree Coverage and Retiree-OnlyPlans

As noted in the preamble to theproposed regulations, sections 4375 and4376 may apply to a retiree-only plan

because, although group health plansthat have fewer than two participantswho are current employees (such asretiree-only plans) are excluded fromthe requirements of chapter 100 (settingforth requirements applicable to grouphealth plans such as portability,nondiscrimination, and market reformrequirements), this exclusion does notapply to sections 4375 and 4376 becausethese sections are in chapter 34. Inaddition, section 4376(c)(2)(A) statesexplicitly that an applicable self-insuredhealth plan includes a plan establishedor maintained by one or more employersfor the benefit of their employees orformer employees. Some commentators

requested that the final regulationsexempt from the PCORI fee retireecoverage on public policy grounds, butgenerally agreed that a retiree-onlyinsured plan or retiree coverage underan applicable self-insured health planmay be subject to the PCORI fee.Consistent with the statutory language,the final regulations apply the PCORIfee to specified health insurancepolicies or applicable self-insuredhealth plans that provide accident andhealth coverage to retirees, includingretiree-only policies and plans.

III. COBRA Coverage

Commentators requested clarificationof whether sections 4375 and 4376apply to continuation coverage requiredunder the Consolidated OmnibusBudget Reconciliation Act of 1985(COBRA) or similar continuationcoverage under other federal law orunder state law (referred to collectivelyas continuation coverage) and askedthat the final regulations explicitlyexclude continuation coverage fromapplication of those sections. If thecoverage provided under the



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continuation coverage arrangement isaccident and health coverage, there isno basis to exclude the arrangementfrom the PCORI fee. The requirements ofsections 4375 and 4376 apply tospecified health insurance policies thatprovide accident and health coverageand plans that are applicable self-insured health plans, regardless of

whether provided through theindividual market, to an activeemployee as part of a group health plan,or as continuation coverage to an activeemployee, former employee, orotherwise qualifying beneficiary. Inresponse to comments, these finalregulations state explicitly thatcontinuation coverage must be takeninto account in determining the PCORIfee, unless the arrangement is otherwiseexcluded.

IV. Lives Taken Into Account inCalculating the Fee

The fee imposed on an issuer of aspecified health insurance policy undersection 4375 is based on the averagenumber of lives covered under thepolicy during the policy year. The feeimposed on a plan sponsor of anapplicable self-insured health planunder section 4376 is based on theaverage number of lives covered underthe plan during the plan year.

Commentators acknowledged thatseparate fees are imposed by sections4375 and 4376, but argued that this onlyreflects congressional intent for thePCORI fee to extend to both insured andself-insured arrangements. Several

commentators requested that the finalregulations provide that the PCORI feedoes not apply multiple times ifaccident and health coverage isprovided to one individual throughmore than one policy or self-insuredarrangement (for example, where anindividual is covered by a fully-insuredmajor medical insurance policy and aself-insured prescription arrangement).Commentators also requested that thefinal regulations clarify that the issueror plan sponsor is required to pay onlyonce with respect to each covered lifeunder the specified health insurance

policy or applicable self-insured healthplan.The final regulations do not adopt the

requested change that the fee apply onlyonce with respect to each covered life

because it would be contrary to theexplicit statutory language applying thefee to each specified health insurancepolicy or applicable self-insured healthplan. For example, for an employeecovered by both a group insurancepolicy and a health reimbursementarrangement (HRA), the group insurancepolicy falls within the definition of a

specified health insurance policy towhich section 4375 applies a fee, andthe HRA falls within the definition of anapplicable self-insured health plan, towhich section 4376 applies a fee to theplan sponsor. Because there are noallocation rules or other method ofapplying the fee on an aggregated basisin the statute or legislative history, there

is no evidence that the statutoryprovisions were intended to be appliedin a manner that aggregated theseseparate arrangements for a singlecovered individual and allocated the fee

between them. However, in response tocomments, the final regulations permitan applicable self-insured health planthat provides accident and healthcoverage through fully-insured optionsand self-insured options to determinethe fee imposed by section 4376 bydisregarding the lives that are coveredsolely under the fully-insured options.(See also discussion under section V of

this preamble relating to the special rulefor plan sponsors that establish ormaintain multiple self-insuredarrangements with the same plan yearand section VI of this preamble relatingto special rules for healthreimbursement arrangements andflexible spending arrangements). Exceptas otherwise provided, the finalregulations do not permit an issuer orplan sponsor to disregard a covered lifemerely because that individual is alsocovered under another specified healthinsurance policy or applicable self-insurance plan.

V. Lives Covered Under MultiplePolicies or Plans

Section 46.43761(b)(1)(iii) of theproposed regulations provided that forpurposes of section 4376, two or morearrangements established or maintained

by the same plan sponsor that providefor accident and health coverage otherthan through an insurance policy andthat have the same plan year may betreated as a single applicable self-insured health plan for purposes ofcalculating the fee imposed by section4376.

A few commentators described self-

insured arrangements that arecoordinated with an underlying healthplan, including a plan of an unrelatedentity. Commentators pointed tocollectively bargained arrangementsunder which the union sponsors aprescription-only or premium-only planthat is tied to an insured health plan ofthe employers that have entered into acollective bargaining agreement betweenthe employee representatives and one ormore employers. These commentatorsrequested that the final regulationsinclude special rules that exempt from

the PCORI fee certain applicable self-insured health plans that are establishedor maintained by a union because thelives covered under the union plan aretaken into account for the fee imposedon the employer, if the employers planis also an applicable self-insured healthplan, or the issuer, if the employersplan is an insured plan. One

commentator requested that the finalregulations permit collectively

bargained plans to be aggregated withthe employers plan, without regard towhether they have the same sponsor orplan year, for purposes of determiningthe fee with respect to the same livescovered.

One commentator pointed out that theMedical Loss Ratio (MLR) Interim FinalRule issued by HHS allows affiliatedissuers to report their premiums andexpenditures on an aggregate basis ifone issuer provides in-network coverageand the second provides out-of network

coverage for one group health plan. Thecommentator requested the sameapproach provided in 46.43761(b)(1)(iii) (permitting two or moreapplicable self-insured health planswith the same plan sponsor and sameplan year to be treated as a singleapplicable self-insured health plan) beprovided for group health plans thatprovide separate benefits to aparticipant or beneficiary during thesame plan year under two or moreinsurance policies or through a self-insured plan and an insured plan.Specifically, the commentator suggestedthat if insurance policies covering the

same individual qualify for aggregationunder the MLR rebate reporting rules,the IRS should allow issuers toaggregate their policies for purposes ofthe PCORI fee.

Sections 4375 and 4376 specificallyapply the PCORI fee to, respectively, anissuer of a specified health insurancepolicy and to the sponsor of anapplicable self-insured health plan(subject to certain exceptions). Thecommentators have shown no statutory

basis for combining arrangementsinvolving different issuers or differentplan sponsors. The statute specifically

contemplated that differentarrangements having different plansponsors would be subject to separatefees imposed by section 4376. Seesection 4376(b)(2) (naming the differenttypes of plan sponsors for differenttypes of applicable self-insured healthplans). Commentators, however, pointto the proposed rule, adopted in thesefinal regulations, permitting a plansponsor to treat two different applicableself-insured health plans with the sameplan year and plan sponsor as one planas the basis for adopting the suggested



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change. There is no significantdifference between that arrangementand a single plan, or umbrella plancontaining both self-insuredarrangements. In contrast, if the twoarrangements are sponsored by twodifferent plan sponsors, there is nosingle plan equivalent. Accordingly, thissuggestion is not adopted in the final

regulations.VI. Health ReimbursementArrangements (HRAs) and FlexibleSpending Arrangements (FSAs)

Section 46.43761(b)(1)(ii) of theproposed regulations defined anapplicable self-insured health plan toinclude HRAs (as described in Notice200245 (20022 CB 93)) and healthflexible spending arrangements (asdescribed in section 106(c)(2)) (FSAs)that do not satisfy the requirements to

be treated as an excepted benefit (withinthe meaning of section 9832(c) and 54.98311(c)(3)(v)). The proposedregulations also provided additionalrules that permitted the plan sponsor toassume one covered life for eachemployee with an HRA and for eachemployee with an FSA that is not anexcepted benefit. The final regulationsretain these rules. See 601.601(d)(2).

Commentators requested that thedefinition of applicable self-insuredhealth plan be revised to exclude allHRAs, or alternatively that the finalregulations exclude from the definitionHRAs that are integrated withcoverage under a self-insured or fully-insured arrangement. One commentator

requested that the final regulationsexempt from the definition of applicableself-insured health plan premium-onlyHRAs for Medicare-eligible retirees. Asdiscussed in the preamble to theproposed regulations, an HRA is notsubject to a separate fee under section4376 if the plan sponsor also maintainsa separate applicable self-insured healthplan with a calendar year (referred to asthe other plan). In such circumstances,the plan sponsor is permitted to treatthe HRA and other plan as a singleapplicable self-insured health plan forpurposes of section 4376 and therefore

determine and pay the PCORI fee oncewith respect to each life covered underthe HRA and other plan. Because thestatutory structure provides that the feeimposed by section 4375 is separatefrom the fee imposed by section 4376,these regulations do not permit a plansponsor to treat the HRA and a fully-insured plan as a single plan orarrangement for purposes of the PCORIfee, and these final regulations includeadditional examples to clarify theapplication of the PCORI fee to an HRA,including an HRA and other plan.

For the same reasons, the finalregulations do not adopt the request toprovide that the PCORI fee does notapply to an employees FSA that doesnot meet the requirements for being anexcepted benefit if the employee iscovered by a major medical plan.

VII. Determination of Whether an

Individual Is Residing in the UnitedStates

The term specified health insurancepolicyincludes only an accident andhealth insurance policy that is issuedwith respect to an individual residing inthe United States. The final regulationsadopt the rule in the proposedregulations that provides that if theaddress on file with the issuer or plansponsor for the primary insured isoutside of the United States, the issueror plan sponsor may treat the primaryinsured and the primary insuredsspouse, dependents, or other

beneficiaries covered under the policyas having the same place of abode andnot residing in the United States. Forthis purpose, the termprimary insuredrefers to the individual covered by thepolicy whose eligibility for coveragewas not due to his or her status as aspouse, dependent, or other beneficiaryof another insured individual. Also asprovided in the proposed regulations,these final regulations clarify that forpurposes of the PCORI fee, anindividual residing in the UnitedStates means an individual who has aplace of abode in the United States.

Two commentators suggested that an

issuer or plan sponsor should bepermitted to find that a primary insuredwho is on a temporary U.S. visa doesnot have a place of abode in the UnitedStates. The commentators argued that

because many (if not most) healthinsurance issuers offering expatriateplans request, for compliance purposes,an overview of citizenship and visastatus from an employee covered underan employer-sponsored internationalplan, visa information and citizenshipinformation should be available to themand can be relied upon in determiningwhether the employees place of abode

is the United States or elsewhere.The final regulations do not adopt thisrequested change. To exclude coveredindividuals who are residing in theUnited States would be contrary toCongressional intent that the PCORI feeapplies to policies and plans that coverindividuals residing in the UnitedStates. An individual on a temporaryU.S. visa who has a place of abode inthe United States is residing in theUnited States. For purposes of sections4375, 4376, and 4377, the determinationof place of abode is based on the most

recent address on file with the issuer orplan sponsor.

VIII. Self-Insured Expatriate Plans

As in the proposed regulations, thesefinal regulations provide that the termspecified health insurance policydoesnot include any group policy issued toan employer if the facts and

circumstances show that the grouppolicy was designed and issuedspecifically to cover primarilyemployees who are working andresiding outside of the United States.One commentator requestedclarification that similar self-insuredplans are also excepted for purposes ofthe fee under section 4376. The finalregulations clarify that the termapplicable self-insured health plan doesnot include a self-insured plan if thefacts and circumstances show that theself-insured plan was designedspecifically to cover primarilyemployees who are working andresiding outside of the United States.

IX. Additional Rules for Determining theApplicable Fee

Under the proposed regulations,issuers and plan sponsors werepermitted to use alternative methods fordetermining the average number of livesfor the year. Issuers could choose any offour alternative methods to determinethe average number of lives coveredunder policies that it issues for purposesof the fee imposed by section 4375: (1)The actual count method, (2) thesnapshot method, (3) the member

months method, or (4) the state formmethod. While the actual count andsnapshot methods count lives coveredon the policy-by-policy basis for eachpolicy having a policy year that ends inthe reporting period (which is based onthe calendar year), the member monthsor state form methods count all livescovered during the calendar year for allpolicies in effect during the calendaryear irrespective of when actual policyyears end. Plan sponsors could use oneof three alternative methods todetermine the average number of livescovered under a plan for purposes of the

fee imposed by section 4376: (1) Theactual count method, (2) the snapshotmethod, or (3) the Form 5500 method.

One of the permitted methodsthesnapshot methodwould haverequired issuers and plan sponsors todetermine the average lives by addingthe number of lives covered on one date(or an equal number of dates) in eachquarter during the plan year or policyyear and dividing that sum by thenumber of dates on which the count wasmade. Commentators suggested thatissuers and plan sponsors using the



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snapshot method should not be requiredto use the same date for each quarter,

but should be permitted to use differentdates to determine the number of livescovered during a quarter to addressholidays, weekend days, or other similarissues. The Treasury Department andthe IRS recognize the need for flexibility

but also the need to avoid permitting

issuers and plan sponsors to pick themost advantageous dates (that is, thedates on which the number of livescovered is the lowest so that under thefacts and circumstances the snapshotmethod does not fairly approximate theaverage number of lives covered for theapplicable year). In response to thesecomments, the final regulations requirean issuer or a plan sponsor that uses thesnapshot method to determine thecounts used based on a date during thefirst, second, or third month of eachquarter (or more dates in each quarter ifan equal number of dates is used for

each quarter). Each date used for thesecond, third, and fourth quarters mustbe within three days of the date in thatquarter that corresponds to the dateused for the first quarter, and all datesused must fall within the same policyyear or plan year. If an issuer or plansponsor uses multiple dates for the firstquarter, the issuer or plan sponsor mustuse dates in the second, third, andfourth quarters that correspond to eachof the dates used for the first quarter orare within three days of suchcorresponding dates, and all dates usedmust fall within the same policy year or

plan year. The 30th and 31st day of amonth are treated as the last day of themonth for purposes of determining thecorresponding date for any month thathas fewer than 31 days (for example, ifeither March 30 or 31 are used assnapshot dates for a calendar year plan,

June 30 is the corresponding date for thesecond quarter). Thus, for example,under the final regulations, if a plansponsor uses the snapshot method todetermine the average number of livescovered under an applicable self-insured health plan with a calendar yearplan year and uses Monday, January 7,2013, as the counting date for the firstquarter, the plan sponsor may use anydate beginning with Thursday, April 4,2013, and ending with Wednesday,April 10, 2013, as the counting date forthe second quarter (because all of thosedays are within three days of April 7,2013, the date that corresponds to the

January 7, 2013 counting date for thefirst quarter).

One commentator stated that theactual count and snapshot methods maypose significant operational challengesfor many issuers. Because these

methods require a determination of thenumber of lives covered by reference tothe policy year for each healthinsurance policy that is subject to thefee, the commentator anticipates thatissuers with a significant number ofinsurance policies that have policyyears that begin at different dates duringa calendar year will have difficulty

implementing this approach. Thecommentator suggested that, regardlessof the actual policy year, issuers whochoose to use the actual count methodshould be permitted to measure livescovered on all days of a calendar yearand then divide the result by 365. Thecommentator also suggested that,regardless of the actual policy year,issuers who choose to use the snapshotmethod should be permitted to measurelives covered using calendar yearquarters and then average the results.

The final regulations do not adopt thisrequested change. The fee imposed by

section 4375 applies to policies basedon their policy year. For administrativeease and to facilitate the use of availableinformation that is compiled by issuers,these regulations provide the membermonths method and the state formmethod as alternatives for all policies ineffect during a calendar year. Undereach of these alternatives, the datapermitted to be used is already reported

by the issuer based on the calendar year.Issuers may use calendar yearinformation in lieu of policy yearinformation only if they use the membermonths method or the state formmethod.

The member months data and the datareported on state forms are based on thecalendar year. To adjust for the fee beingapplicable to policy years ending afterSeptember 30, 2012, but before January1, 2013, and after December 31, 2018,

but before October 1, 2019, these finalregulations adopt the pro rata approachset out in the proposed regulations forcalculating the average number of livescovered using the member monthsmethod or the state form method for2012 and 2019. For example, themember months number for 2012 isdivided by 12 and the resulting number

is multiplied by one-quarter to arrive atthe average number of lives covered forOctober through December 2012. Theproposed regulations further treated theamount calculated under this pro rataapproach as the average number of livescovered for policies with policy yearsthat end on or after October 1, 2012, and

before January 1, 2013. Similar rules areprovided for 2019.

Commentators suggested that thespecial pro rata approach for calculatingthe average number of lives coveredusing the member months method or the

state form method for 2012 and 2019should be applied to all years the fee isin effect, to appropriately reflect thechange in the fee during each of suchintervening years. One commentatorargued that this revision is needed toprevent issuers that use these methodsfrom being unfairly penalized by payingthe rate determined as of December 31

of each year, resulting in anunanticipated higher liability for anissuer using those methods.

The final regulations do not adopt thisrequested change. The special pro rataapproach for calculating the averagenumber of lives covered was the leastadministratively burdensome way forthe first and last policy years to whichthe fee applies to incorporate data fromthe NAIC annual report and similar statereporting requirements with theapplicability dates for the PCORI feerelated to policy years ending in 2012and 2019. Other years are not affected

by the applicability date issues. Inaddition, issuers are not required to usethe member months or state formmethod and can use another permissiblemethod.

X. Plan Years Subject to the PCORI Fee

The fee imposed by section 4376applies to plan years ending on or afterOctober 1, 2012, and before October 1,2019. Under the proposed regulations,an applicable self-insured health planwas required to determine the fee usingthe applicable dollar amount thatapplies for the plan year and the average

number of lives covered during the planyear. Unlike the section 4375 fee, whichis based on policy years, the applicationand amount of the section 4376 fee is

based on the applicable dollar amountunder section 4376 that is in effect onthe last day of the plan year. Onecommentator requested additionalexamples illustrating the plan yearscovered by the fee, including the firstplan year to which the PCORI feeapplies. In response, 46.43761(a) ofthe final regulations includes examplesillustrating the plan years (calendar andfiscal years) subject to the PCORI feeand the applicable dollar amount thatmust be used to determine the section4376 fee for that plan year.

XI. Reporting and Payment Deadline

Consistent with the proposedregulations, these final regulationsrequire an issuer of a specified healthinsurance policy and plan sponsor of anapplicable self-insured health plan toreport and pay the PCORI fee for apolicy year or plan year no later than

July 31 of the year following the last dayof the policy or plan year.



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One commentator asked that the finalregulations provide that the reportingand payment due date for a plansponsor that uses the Form 5500 methodto determine the PCORI fee be the duedate (including extensions) for theplans Form 5500. The extended duedate for a Form 5500 for a plan with acalendar year plan year is generally

October 15 of the following year. Asdiscussed earlier in this preamble, theInstitute is funded in part from thePCORI fee. Under current rules, thePCORI fee ceases to apply after the endof the last policy and plan year ending

before October 1, 2019, (with a due dateof July 31, 2020) and funding for theInstitute terminates on September 30,2019. This lag between the last year ofthe PCORI fee (policy and plan yearsending before October 1, 2019) and theproposed due date for the fee for the lastyear (July 31, 2020) means that thePCORI fee collected for the last year will

not be available to the Institute. A delayfor policy or plan years ending in yearsbefore 2019, as requested, would permitthe PCORI fee for the policy or plan yearending during 2018 to be paid afterSeptember 30, 2019, and result in theInstitute losing an additional year offunding. Accordingly, the TreasuryDepartment and IRS have determinedthat delaying the proposed due datewould result in additionalcomplications and burdens for theInstitute. Thus, these final regulationsretain the proposed rule set forth in 40.6071(a)1(c) that all plan sponsorsand issuers report and pay the PCORI

fee no later than July 31 of the calendaryear following the last day of the policyor plan year.

XII. Correction and Amendments ofForm 720

One commentator requested that thefinal regulations provide that plansponsors may correct, without penalty,inadvertent errors if correction is withina specified period or if the error is deminimis. These final regulations do notadopt this change and, therefore, do notexplicitly address corrections. Asdiscussed in the preamble to the

proposed regulations, the PCORI feemust be reported and paid on the Form720, Quarterly Federal Excise TaxReturn.

The applicable penalties related tolate filing of the applicable form or latepayment of the applicable fee, however,may be waived or abated if the issuer orplan sponsor has reasonable cause andthe failure was not due to willfulneglect. See 301.66511(c) relating torules for showing of reasonable cause.Issuers and plan sponsors may use Form720X, Amended Quarterly Federal

Excise Tax Return, to makeadjustments to liabilities reported on apreviously filed Form 720, includingadjustments that result in anoverpayment.

XIII. Special Rules for First Year Fee Isin Effect

The Treasury Department and the IRS

recognized when issuing the proposedregulations that in certain instances thepolicy or plan year to which the PCORIfee would apply had alreadycommenced, and therefore thattransition relief was appropriate forpurposes of counting lives coveredunder the policy or plan during theperiod before the issuance of theproposed regulations. Twocommentators requested additionaltransition relief, including extending thegood faith compliance period providedunder the proposed regulations. Thesefinal regulations do not adopt thisrequest because the TreasuryDepartment and IRS have determinedthat the relief provided in the proposedregulations is sufficient.

Accordingly, consistent with theproposed regulations, these finalregulations provide that an issuer usingthe actual count method for determiningthe average number of lives coveredunder a policy with a policy year thatends on or after October 1, 2012, could

begin counting lives covered under apolicy as of May 14, 2012 (30 days afterthe date that the proposed regulationswere published in the Federal Register),rather than the first day of the policy

year, and divide by the appropriatenumber of days remaining in the policyyear. Similarly, for policy years that endon or after October 1, 2012, but that

began before May 14, 2012, theseregulations provide that issuers usingthe snapshot method could use countsfrom quarters beginning on or after May14, 2012, to determine the averagenumber of lives covered under thepolicy. These final regulations alsopermit a plan sponsor to use anyreasonable method to determine theaverage number of lives covered underan applicable self-insured health plan

for a plan year beginning before July 11,2012 (90 days after the date that theproposed regulations were published inthe Federal Register), and ending on orafter October 1, 2012.

XIV. Third-Party or Affiliated InsurerReporting and Payment

The proposed regulations did notpermit third-party reporting or paymentof the PCORI fee. One commentatorrequested that the final regulationspermit third-party reporting andpayment. Another commentator

requested that the final regulationspermit affiliated insurers to designate aninsurer that will be responsible forpayment of the section 4375 fee as longas the responsible insurer consents tosuch designation. Because the PCORIfee ceases to apply to policy years andplan years that end on or after October1, 2019, the Treasury Department and

IRS have determined that the burdenand complexity that would have to beaddressed by issuers, plan sponsors andthe IRS to develop and operate a third-party reporting and payment regimesignificantly outweigh the benefits ofsuch a regime. Therefore, the finalregulations do not permit or includerules for third-party reporting orpayment of the PCORI fee.

Applicability Date

These regulations apply to policy andplan years ending on or after October 1,2012, and before October 1, 2019.

Special Analyses

It has been determined that these finalregulations are not a significantregulatory action as defined inExecutive Order 12866, assupplemented by Executive Order13563. Therefore, a regulatoryassessment is not required. It is herebycertified that these final regulations willnot have a significant economic impacton a substantial number of smallentities. This certification is based onthe fact that small businesses generallydo not have self-insured health plansand that these regulations will thereforeprimarily affect large corporations.Therefore, a Regulatory FlexibilityAnalysis under the RegulatoryFlexibility Act (5 U.S.C. chapter 6) isnot required. The Treasury Departmentand the IRS specifically solicitcomments from any party, particularlyaffected small entities, on the accuracyof this certification. Pursuant to section7805(f) of the Code, the proposedregulations were submitted to the ChiefCounsel for Advocacy of the SmallBusiness Administration for commentson its impact on small business and no

comments were received.

Drafting Information

The principal authors of theseregulations are R. Lisa Mojiri-Azad,Office of Division Counsel/AssociateChief Counsel (Tax Exempt andGovernment Entities), and Rebecca L.Baxter, Office of Associate ChiefCounsel (Financial Institutions &Products). However, other personnelfrom the Treasury Department and theIRS participated in their development.



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List of Subjects

26 CFR Part 40

Excise taxes, Reporting andrecordkeeping requirements.

26 CFR Part 46

Excise taxes, Insurance, Reporting andrecordkeeping requirements.

26 CFR Part 602

Reporting and recordkeepingrequirements.

Adoption of Amendments to theRegulations

Accordingly, 26 CFR parts 40, 46, and602 are amended as follows:

PART 40EXCISE TAX PROCEDURALREGULATIONS

Paragraph 1. The authority citationfor part 40 continues to read in part asfollows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 40.01 is amended by: 1. Removing from the third sentencein paragraph (a) the language chapter34 to taxes imposed on policies issued

by foreign insurers and addingchapter 34 to taxes imposed on certaininsurance policies in its place. 2. Adding a new sentence after thethird sentence in paragraph (a).

The addition reads as follows:

40.01 Introduction.

(a) * * * References in this part totaxes also include references to the

fees imposed by sections 4375 and 4376.* * *

* * * * * Par. 3. Section 40.6011(a)1 isamended by: 1. In paragraph (a)(2)(i), first sentence,the language paragraph (b) of thissection is removed and the languageparagraphs (b) and (c) of this sectionis added in its place. 2. Paragraph (c) is added.

The addition reads as follows:

40.6011(a)1 Returns.

* * * * *

(c) Fees on health insurance policiesand self-insured health plans(1) Ingeneral. A return that reports liabilityimposed by section 4375 or 4376 is areturn for policies or plans with policyor plan years ending in the previouscalendar year, and, for issuers thatdetermine the average number of livescovered under a policy for purposes ofsection 4375 using the member monthsmethod under 46.43751(c)(2)(v) orthe state form method under 46.43751(c)(2)(vi) of this chapter, the return isfor all policies in effect during the

previous calendar year. The secondsentence of paragraph (a)(2)(i) of thissection (relating to filing quarterlyreturns regardless of whether liability isincurred) does not apply to a personthat files a Form 720, Quarterly FederalExcise Tax Return, only to reportliability imposed by section 4375 or4376.

(2) Applicability date. This paragraph(c) applies to returns that report liabilityimposed by section 4375 or 4376. Par. 4. Section 40.6071(a)1 isamended as follows: 1. Paragraph (c) is revised. 2. Paragraph (d) is added.

The revision and addition read asfollows:

40.6071(a)1 Time for filing returns.

* * * * *(c) Fees on health insurance policies

and self-insured health plans(1)Specified health insurance policies. Areturn that reports liability for the feeimposed by section 4375 must be filed

by July 31 of the calendar yearimmediately following the last day ofthe policy year. For issuers thatdetermine the average number of livescovered under the policy for section4375 using the member months methodunder 46.43751(c)(2)(v) or the stateform method under 46.43751(c)(2)(vi), the return must be filed by

July 31 of the immediately followingcalendar year. Thus, for example, areturn that reports liability for the feeimposed by section 4375 for the yearending on December 31, 2012, must be

filed by July 31, 2013.(2) Applicable self-insured health

plans. A return that reports liability forthe fee imposed by section 4376 for aplan year must be filed by July 31 of thecalendar year immediately following thelast day of the plan year. Thus, forexample, a return that reports liabilityfor the fee imposed by section 4376 forthe plan year ending on January 31,2013, must be filed by July 31, 2014.

(d) Effective/Applicability date.Paragraphs (a) and (b) of this sectionapply to returns for calendar quarters

beginning on or after October 1, 2001,

and paragraph (c) of this section appliesto returns that report liability imposedby section 4375 or 4376.

40.60911 Amended

Par. 5. Section 40.60911, paragraph(a), is amended by removing thelanguage paragraph (b) of this section,quarterly returns and by adding thelanguage paragraphs (b) and (c) of thissection, returns in its place. Par. 6. Section 40.6302(c)1 isamended by revising paragraph (e)(1)(iv)to read as follows:

40.6302(c)1 Deposits.

* * * * *(e) * * *(1) * * *(iv) Sections 4375 and 4376 (relating

to fees on health insurance policies andself-insured health plans).

* * * * *

PART 46EXCISE TAX ON CERTAININSURANCE POLICIES, SELFINSURED HEALTH PLANS, ANDOBLIGATIONS NOT IN REGISTEREDFORM

Par. 7. The authority citation for part46 continues to read in part as follows:

Authority: 26 U.S.C. 7805. * * *

Par. 8. In part 46, the heading isrevised to read as set forth above.

46.01 Amended

Par. 9. In 46.01, first sentence, thelanguage policies issued by foreign

insurers is removed and the languagecertain insurance policies and self-insured health plans is added in itsplace.

46.02 [Removed]

Par. 10. Section 46.02 is removed. Par. 11. In Part 46, subpart C isredesignated as subpart D and a newsubpart C is added to read as follows:

Subpart CFees on Insured and Self-insured Health Plans

Sec.46.43751 Fee on issuers of specified health

insurance policies.

46.43761 Fee on sponsors of self-insuredhealth plans.46.43771 Definitions and special rules.

Subpart CFees on Insured and Self-insured Health Plans

46.43751 Fee on issuers of specifiedhealth insurance policies.

(a) In general. An issuer of a specifiedhealth insurance policy is liable for a feeimposed by section 4375 for policyyears ending on or after October 1, 2012,and before October 1, 2019. Paragraph(b) of this section provides definitionsthat apply for purposes of section 4375

and this section. Paragraph (c) of thissection provides rules for calculatingthe fee under section 4375. Paragraph(d) of this section provides theapplicability date. For rules relating tofiling the required return and paying thefee, see 40.6011(a)1 and 40.6071(a)1 of this chapter.

(b) Definitions. The followingdefinitions apply for purposes of section4375 and this section. See also 46.43771 for additional definitions.

(1) Specified health insurancepolicy(i) In general. Except as



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provided in paragraph (b)(1)(ii) of thissection and 46.43771, specifiedhealth insurance policymeans anyaccident and health insurance policy(including a policy under a group healthplan) issued with respect to individualsresiding in the United States (as definedin 46.43771(a)(2)), including prepaidhealth coverage arrangements described

in paragraph (b)(2) of this section.Specified health insurance policyalsoincludes any policy that providesaccident and health coverage to anactive employee, former employee, orqualifying beneficiary, as continuationcoverage required under theConsolidated Omnibus BudgetReconciliation Act of 1985 (COBRA) orsimilar continuation coverage underother Federal law or state law.

(ii) Exceptions. The term specifiedhealth insurance policydoes notinclude

(A) Any insurance policy if

substantially all of its coverage is ofexcepted benefits described in section9832(c);

(B) Any group policy issued to anemployer where the facts andcircumstances show that the grouppolicy was designed and issuedspecifically to cover primarilyemployees who are working andresiding outside of the United States (asdefined in 46.43771(a)(3));

(C) Any stop loss or indemnityreinsurance policy; or

(D) Any insurance policy to the extentit provides an employee assistance

program, disease management program,or wellness program if the program doesnot provide significant benefits in thenature of medical care or treatment.

(iii) Stop loss policy. For purposes ofparagraph (b)(1)(ii) of this section, stoploss policymeans an insurance policy inwhich

(A) The insurer that issues the policyto a person establishing or maintaininga self-insured health plan becomesliable for all, or an agreed upon portionof, losses that person incurs in coveringthe applicable lives in excess of aspecified amount; and

(B) The person establishing ormaintaining the self-insured health planretains its liability to, and its contractualrelationship with, the applicable livescovered.

(iv) Indemnity reinsurance policy. Forpurposes of paragraph (b)(1)(ii) of thissection, indemnity reinsurance policymeans an agreement between two ormore insurance companies underwhich

(A) The reinsuring company agrees toaccept and to indemnify the issuingcompany for all or part of the risk of loss

under policies specified in theagreement; and

(B) The issuing company retains itsliability to, and its contractualrelationship with, the applicable livescovered.

(2) Prepaid health coveragearrangement. The termprepaid healthcoverage arrangementmeans an

arrangement under which fixedpayments or premiums are received asconsideration for a persons agreementto provide or arrange for the provisionof accident and health coverage toindividuals residing in the UnitedStates, regardless of how such coverageis provided or arranged to be provided.For example, any hospital or medicalservice policy or certificate, hospital ormedical service plan contract, or healthmaintenance organization contract is aspecified health insurance policy.

(c) Calculation of fee(1) In general.The amount of the fee for a policy for

a policy year is equal to the product ofthe average number of lives coveredunder the policy for the policy year(determined in accordance withparagraphs (c)(2) and (c)(3) of thissection) and the applicable dollaramount (determined in accordance withparagraph (c)(4) of this section). Forpurposes of computing the fee underthis paragraph (c), in the case of anissuer that determines the averagenumber of lives covered for all policiesin effect during a calendar year usingthe member months method underparagraph (c)(2)(v) of this section or the

state form method under paragraph(c)(2)(vi) of this section, the applicabledollar amount with respect to suchissuers policies for such calendar yearis the applicable dollar amount forpolicy years ending on December 31 ofsuch calendar year (determined inaccordance with paragraph (c)(4) of thissection), except that the applicabledollar amount with respect to such anissuers policies for calendar year 2019is the applicable dollar amount forpolicy years ending on September 30,2019. For more information, see theexamples in paragraphs (c)(2)(iii)(B),(c)(2)(iv)(B), (c)(2)(v)(B), and (c)(2)(vi)(B)of this section.

(2) Determination of the averagenumber of lives covered under a

policy(i) In general. To determine theaverage number of lives covered undera specified health insurance policyduring a policy year, an issuer must useone of the following methods

(A) The actual count method(described in paragraph (c)(2)(iii) of thissection);

(B) The snapshot method (describedin paragraph (c)(2)(iv) of this section);

(C) The member months method(described in paragraph (c)(2)(v) of thissection); or

(D) The state form method (describedin paragraph (c)(2)(vi) of this section).

(ii) Consistency requirements. Anissuer must use the same method ofcalculating the average number of livescovered under a policy consistently forthe duration of the year. In addition, forall policies for which a liability isreported on a Form 720, QuarterlyFederal Excise Tax Return, for aparticular year, the issuer must use thesame method of computing livescovered. An issuer that determines theaverage number of lives covered byusing the actual count method describedin paragraph (c)(2)(iii) of this section orthe snapshot method described inparagraph (c)(2)(iv) of this section maychange its method of computing theaverage lives covered to the snapshotmethod or actual count method,

respectively, provided that the issueruses the same method for computing theaverage lives covered for all policies forwhich a liability is reported on the Form720 for that year. For example, an issuerwith a policy having a policy year thatends on June 30, Policy A, maydetermine the average number of livescovered under Policy A for July 1, 2013,to June 30, 2014, using the actual countmethod if the issuer uses the actualcount method for all policies for whicha liability will be reported on the Form720 due by July 31, 2015 (the due datefor return that will include the liability

for the July 2013 to June 2014 policyyear for Policy A). The issuer maychange its method for determining theaverage number of lives covered underPolicy A to the snapshot method for the

July 1, 2014, to June 30, 2015, policyyear, provided that the snapshot methodis used for all policies for which aliability will be reported on the Form720 due by July 31, 2016 (the due datefor return that will include the liabilityfor the July 2014 to June 2015 policyyear for Policy A). An issuer thatdetermines the average number of livescovered by using the member monthsmethod under paragraph (c)(2)(v) of thissection or the state form method underparagraph (c)(2)(vi) of this section mustuse the same method for calculatinglives covered for all policy years forwhich the fee applies.

(iii) Actual count method(A)Calculation method. An issuer maydetermine the average number of livescovered under a policy for a policy year

by adding the total number of livescovered for each day of the policy yearand dividing that total by the number ofdays in the policy year.



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(B) Example. The following exampleillustrates the principles of paragraphs(c)(1) and (c)(2)(iii)(A) of this section:

Example. Insurance Company A issuesthree policies that are in effect during 2014,Group Health Insurance Policy A, which hasa policy year from December 1 to November30, Group Health Insurance Policy B, whichhas a policy year from March 1 to February

28, and Group Health Insurance Policy C,which has a policy year from January 1 toDecember 31. To calculate the averagenumber of lives covered for 2014, InsuranceCompany A must calculate the averagenumber of lives covered for each of its threepolicies for the policy year that ends in 2014.Insurance Company A chooses to use theactual count method under paragraph(c)(2)(iii)(A) of this section to determineaverage lives covered for policies having apolicy year that ends in 2014. InsuranceCompany A calculates the sum of livescovered under Policy A for each day of thepolicy year ending November 30, 2014, as3,285,000. The average number of livescovered under Policy A for the policy yearending November 30, 2014, is 3,285,000divided by 365, or 9,000. Insurance CompanyA calculates the sum of lives covered underPolicy B for each day of the policy yearending February 28, 2014, as 547,500. Theaverage number of lives covered under PolicyB for the policy year ending on February 28,2014, is 547,500 divided by 365, or 1,500.Insurance Company A calculates the sum oflives covered under Policy C for each day ofthe policy year ending December 31, 2014, as4,380,000. The average number of livescovered under Policy C for the policy yearending December 31, 2014, is 4,380,000divided by 365, or 12,000. To calculate thesection 4375 fee under paragraph (c)(1) ofthis section for calendar year 2014, InsuranceCompany A must first determine theapplicable dollar amount for each policyunder paragraph (c)(4) of this section andmultiply that amount by the average numberof lives covered for that policy. InsuranceCompany A then adds the total fees for allthree policies to determine the total fee undersection 4375 that it must pay for calendaryear 2014.

(iv) Snapshot method(A)Calculation method. An issuer maydetermine the average number of livescovered under a policy for a policy year

by adding the totals of lives covered ona date during the first, second, or thirdmonth of each quarter (or more dates in

each quarter if an equal number of datesis used for each quarter), and dividingthat total by the number of dates onwhich a count is made. For purposes ofthis paragraph (c)(2)(iv)(A), each dateused for the second, third and fourthquarters must be within three days ofthe date in that quarter that correspondsto the date used for the first quarter, andall dates used must be within the samepolicy year. If an issuer uses multipledates for the first quarter, the issuermust use dates in the second, third, andfourth quarters that correspond to each

of the dates used for the first quarter orare within three days of suchcorresponding dates, and all dates usedmust be within the same policy year.The 30th and 31st day of a month aretreated as the last day of the month forpurposes of determining thecorresponding date for any month thathas fewer than 31 days (for example, if

either March 30 or March 31 is used asa counting date for a calendar yearpolicy, June 30 is the correspondingdate for the second quarter).

(B) Example. The following exampleillustrates the principles of paragraphs(c)(1) and (c)(2)(iv)(A) of this section:

Example. (i) Insurance Company B issuesthree policies with 12-month policy yearsthat end in 2014, Group Health InsurancePolicy A, which has a policy year fromDecember 1 to November 30, Group HealthInsurance Policy B, which has a policy yearfrom March 1 to February 28, and GroupHealth Insurance Policy C, which has apolicy year from January 1 to December 31.

To calculate the average number of livescovered for 2014, Insurance Company B mustcalculate the average number of lives coveredfor each of its three policies for the policyyear that ends in 2014. Insurance CompanyB chooses to determine the average livescovered using the snapshot method for allpolicies that have a policy year that ends in2014 and chooses to count lives covered ona single date of the first month of eachquarter of the policy years. Thus, for PolicyA, Insurance Company B must count livescovered on a single date falling in each ofDecember 2013, March 2014, June 2014 andSeptember 2014; for Policy B, InsuranceCompany B must count lives covered on asingle date falling in each of March 2014,

June 2014, September 2014 and December2014; and for Policy C, Insurance CompanyB must count lives covered on a single datefalling in each of January 2014, April 2014,

July 2014 and October 2014. In addition, thedate for each of the second, third, and fourthquarters must fall within three days of thedate in such quarter that corresponds to thedate used for the first quarter, and must fallwithin the same policy year.

(ii) On December 6, 2013, Policy A covers8,900 lives, on March 7, 2014, 9,100 lives, on

June 6, 2014, 9,050 lives, and on September5, 2014, 9,050 lives. Insurance Company Btreats the average number of lives coveredunder Policy A for the policy year endingNovember 30, 2014, as 36,100 (8,900 + 9,100

+ 9,050 + 9,050) divided by 4, or 9,025.(iii) On March 4, 2013, Policy B covers

1,500 lives, on June 7, 2013, 1,350 lives, onSeptember 6, 2013, 1,400 lives, and onDecember 6, 2013, 1,550 lives. InsuranceCompany B treats the average number of livescovered under Policy B for the policy yearending February 28, 2014, as 5,800 (1,500 +1,350 + 1,400 + 1,550) divided by 4, or 1,450.

(iv) On January 6, 2014, Policy C covers12,500 lives, on April 4, 2014, 12,250 lives,on July 7, 2014, 12,000 lives, and on October3, 2014, 11,250 lives. Insurance Company Btreats the average number of lives coveredunder Policy C for the policy year ending

December 31, 2014, as 47,750 (12,500 +12,250 + 12,000 + 11,250) divided by 4, or12,000.

(v) To calculate the section 4375 fee underparagraph (c)(1) of this section for calendaryear 2014, Insurance Company B must firstdetermine the applicable dollar amount foreach policy under paragraph (c)(4) of thissection and multiply that amount by thenumber of average lives covered for that

policy. Insurance Company B then adds thetotal fees for all three policies to determinethe total fee under section 4375 that it mustpay for calendar year 2014.

(v) Member months method(A)Calculation method. An issuer maydetermine the average number of livescovered under all policies in effect fora calendar year based on the membermonths (an amount that equals the sumof the totals of lives covered on pre-specified days in each month of thereporting period) reported on theNational Association of InsuranceCommissioners (NAIC) Supplemental

Health Care Exhibit filed for thatcalendar year. Under this method, theaverage number of lives covered underthe policies in effect for the calendaryear equals the member months divided

by 12.

(B) Example. The following exampleillustrates the principles of paragraphs(c)(1) and (c)(2)(v)(A) of this section:

Example. Insurance Company C chooses todetermine the average number of livescovered for all years to which the section4375 fee applies using the member monthsmethod of paragraph (c)(2)(v)(A) of thissection. Insurance Company C reports

12,000,000 as its member months on theNAIC Supplemental Health Care Exhibit filedfor calendar year 2013. Under the membermonths method, Insurance Company Ccalculates the average number of livescovered for all its specified health insurancepolicies in force during calendar year 2013

by dividing 12,000,000 (member months) by12 (number of months in the reportingperiod), which equals 1,000,000. Todetermine the section 4375 fee it must payfor calendar year 2013, Insurance CompanyC multiplies 1,000,000 by the applicabledollar amount that is in effect at the end ofthe calendar year under paragraph (c)(4) ofthis section.

(vi) State form method(A)Calculation method. An issuer that isnot required to file NAIC annualfinancial statements may determine thenumber of lives covered under allpolicies in effect for the calendar yearusing a form that is filed with theissuers state of domicile and a methodsimilar to that described in paragraph(c)(2)(v) of this section, if the formreports the number of lives covered inthe same manner as member months arereported on the NAIC SupplementalHealth Care Exhibit.



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(B) Example. The following exampleillustrates the principles of paragraphs(c)(1) and (c)(2)(vi)(A) of this section:

Example. Insurance Company D is notrequired to file the NAIC SupplementalHealth Care Exhibit, but files a form with itsstate of domicile. Insurance Company Dchooses to determine the average number oflives covered for all years to which the

section 4375 fee applies using the state formmethod of paragraph (c)(2)(vi)(A) of thissection. The state form reports the number oflives covered in the same manner as membermonths is reported on the NAICSupplemental Health Care Exhibit. Forcalendar year 2013, Insurance Company Dreports 12,000,000 as its equivalent membermonths on the state form. Under the stateform method, Insurance Company Dcalculates the average number of livescovered for all of its specified healthinsurance policies in force during calendaryear 2013 by dividing 12,000,000 (equivalentmember months) by 12 (number of months inthe reporting period), which equals1,000,000. To determine the section 4375 feeit must pay for calendar year 2013, InsuranceCompany D multiplies 1,000,000 by theapplicable dollar amount that is in effect atthe end of the calendar year under paragraph(c)(4) of this section.

(3) Special rules for the first year andthe last year the fee is in effect(i)Calculation of the average number oflives covered under the policy for the

first year the fee is in effect. For issuersthat determine the average number oflives covered using data reported on the2012 NAIC Supplemental Health CareExhibit or a permitted state form thatcovers the 2012 calendar year, theaverage number of lives covered under

all policies in effect for the 2012calendar year equals the average numberof lives covered for that year (asdetermined under paragraph (c)(2)(v) or(vi) of this section) multiplied by 14.The resulting number is deemed to bethe average number of lives covered forpolicies with policy years ending on orafter October 1, 2012, and before

January 1, 2013. For policy yearsbeginning before May 14, 2012, andending on or after October 1, 2012,issuers that determine the averagenumber of lives covered using the actualcount method under paragraph (c)(2)(iii)

of this section may calculate the averagenumber of lives covered using data fromthe period beginning May 14, 2012,through the end of the policy year. Forpolicy years beginning before May 14,2012, and ending on or after October 1,2012, issuers that determine the averagenumber of lives covered using thesnapshot method under paragraph(c)(2)(iv) of this section may calculatethe average number of lives coveredusing dates from the quarters remainingin the policy year starting on or afterMay 14, 2012. If an abbreviated year is

used, the issuer will divide the numberof lives covered by the number of daysfrom May 14, 2012, through the end ofthe policy year (for the actual countmethod) or the number of days onwhich a count was made (for thesnapshot method).

(ii) Calculation of the average numberof lives covered under the policy for the

last year the fee is in effect. For issuersthat determine the average number oflives covered using data reported on the2019 NAIC Supplemental Health CareExhibit or a permitted state form thatcovers the 2019 calendar year, theaverage number of lives covered for allpolicies in effect during the 2019calendar year equals the average numberof lives covered for that year (asdetermined under paragraph (c)(2)(v) or(vi) of this section) multiplied by 34.The resulting number is deemed to bethe average number of lives covered forpolicies with policy years ending on or

after January 1, 2019, and beforeOctober 1, 2019.(iii) Examples. The following

examples illustrate the principles ofparagraph (c)(3) of this section:

Example 1. Insurance Company E issuesGroup Health Insurance Policy C, which hasa policy year that ends on November 30,2012. Insurance Company E determines theaverage number of lives covered under apolicy by using the actual count method.Under that method, for that policy year,Insurance Company E calculates the sum oflives covered under Policy C for each day

between May 14, 2012, and November 30,2012, as 10,000. The average number of lives

covered under Policy C for that policy yearis 10,000 divided by the number of days fromMay 14, 2012, through November 30, 2012.Alternatively, Insurance Company E couldhave counted the number of lives covered forthe entire policy year and divided the sum

by 365.Example 2. Insurance Company F reports

12,000,000 as its member months on its NAICSupplemental Health Care Exhibit filed forcalendar year 2012. Under the membermonths method, Insurance Company Fcalculates the average number of livescovered for 2012 by dividing 12,000,000(member months) by 12 (number of monthsin the reporting period), and thenmultiplying the result (1,000,000) by 14,

which equals 250,000. Accordingly, theaverage number of lives covered for policieswith policy years ending on or after October1, 2012, and before January 1, 2013, is250,000.

(4) Applicable dollar amount. Forpolicy years ending on or after October1, 2012, and before October 1, 2013, theapplicable dollar amount is $1. Forpolicy years ending on or after October1, 2013, and before October 1, 2014, theapplicable dollar amount is $2. For anypolicy year ending in any Federal fiscalyear beginning on or after October 1,

2014, the applicable dollar amount isthe sum of

(i) The applicable dollar amount forthe policy year ending in the previousFederal fiscal year; plus

(ii) The amount equal to the productof

(A) The applicable dollar amount forthe policy year ending in the previous

Federal fiscal year; and(B) The percentage increase in theprojected per capita amount of theNational Health Expenditures mostrecently released by the Department ofHealth and Human Services before the

beginning of the Federal fiscal year.(d) Effective/Applicability date. This

section applies for policies with policyyears ending on or after October 1, 2012,and before October 1, 2019.

46.43761 Fee on sponsors of self-insured health plans.

(a) In general(1) General rule. Aplan sponsor of an applicable self-

insured health plan is liable for a feeimposed by section 4376 for plans withplan years ending on or after October 1,2012, and before October 1, 2019.Paragraph (b) of this section providesthe definitions that apply for purposesof section 4376 and this section.Paragraph (c) of this section providesthe requirements for calculating the feeimposed by section 4376. Paragraph (d)of this section provides the applicabilitydate. For rules relating to filing therequired return and paying the fee, see 40.6011(a)1 and 40.6071(a)1.

(2) [Reserved](b) Definitions. The following

definitions apply for purposes of section4376 and this section. See 46.43771for additional definitions.

(1) Applicable self-insured healthplan(i) In general. Except as providedin paragraph (b)(1)(ii) of this section and 46.43771, applicable self-insuredhealth plan means a plan that providesfor accident and health coverage (withinthe meaning of 46.43771(a)) if anyportion of the coverage is providedother than through an insurance policyand the plan is established ormaintained

(A) By one or more employers for the

benefit of their employees or formeremployees;(B) By one or more employee

organizations for the benefit of theirmembers or former members;

(C) Jointly by one or more employersand one or more employee organizationsfor the benefit of employees or formeremployees;

(D) By a voluntary employeesbeneficiary association, as described insection 501(c)(9);

(E) By an organization described insection 501(c)(6); or



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(F) By a multiple employer welfarearrangement (as defined in section 3(40)of the Employee Retirement IncomeSecurity Act of 1974 (ERISA)), a ruralelectric cooperative (as defined insection 3(40)(B)(iv) of ERISA), or a ruralcooperative association (as defined insection 3(40)(B)(v) of ERISA).

(ii) Exceptions. The term applicable

self-insured health plan does notinclude any of the following:

(A) A plan that provides benefitssubstantially all of which are excepted

benefits, as defined in section 9832(c).For example, a health flexible spendingarrangement (health FSA) (as describedin section 106(c)(2)) that satisfies therequirements to be treated as anexcepted benefit under section 9832(c)and 54.98311(c)(3)(v) of this chapteris not an applicable self-insured healthplan. A health FSA that is not treated asan excepted benefit under section9832(c) and 54.98311(c)(3)(v) is anapplicable self-insured health plan.

(B) An employee assistance program,disease management program, orwellness program if the program doesnot provide significant benefits in thenature of medical care or treatment.

(C) A plan that, as demonstrated bythe facts and circumstances surroundingthe adoption and operation of the plan,was designed specifically to coverprimarily employees who are workingand residing outside the United States(as defined in 46.43771(a)(3)).

(iii) Multiple self-insuredarrangements established or maintainedby the same plan sponsor. For purposes

of section 4376, two or morearrangements established or maintainedby the same plan sponsor that providefor accident and health coverage (withinthe meaning of 46.43771(a)) otherthan through an insurance policy andthat have the same plan year may betreated as a single applicable self-insured health plan for purposes ofcalculating the fee imposed by section4376. For example, if a plan sponsorestablishes or maintains a self-insuredarrangement providing major medical

benefits, and a separate self-insuredarrangement with the same plan year

providing prescription drug benefits, thetwo arrangements may be treated as oneapplicable self-insured health plan sothat the same life covered under eacharrangement would count as only onecovered life under the plan for purposesof calculating the fee. Similarly, if aplan sponsor provides a HealthReimbursement Arrangement (HRA) andanother applicable self-insured healthplan that provides major medicalcoverage, the HRA and the majormedical plan may be treated as oneapplicable self-insured health plan if the

HRA and the self-insured plan have thesame plan year.

(iv) Examples. The followingexamples illustrate the principle of thisparagraph (b)(1):

Example 1. (i) Plan Sponsor D sponsorsand maintains three separate plans to providecertain benefits to its employeesPlan 501,Plan 502, and Plan 503.

(ii) Plan 501 is a calendar year plan thatprovides accident and health benefits, otherthan through insurance (that is, on a self-insured basis), to employees of Plan SponsorD. Plan 502 is a calendar year HRA that can

be used to pay for qualified accident andmedical expenses for employees of PlanSponsor D and their eligible dependents.Plan 503 provides dental and vision benefitsfor employees of Plan Sponsor D and eligibledependents, other than through insurance(that is, on a self-insured basis).

(iii) Because Plan 501 and Plan 502provide accident and health coverage (withinthe meaning of 46.43771(a)) and aremaintained by Plan Sponsor D for the benefitof its employees, Plans 501 and 502 are

applicable self-insured health plans that aresubject to the fee imposed by section 4376.Because dental and vision benefits areexcepted benefits, as defined in section9832(c), Plan 503 is not an applicable self-insured health plan subject to the section4376 fee. Under the special rule set forth in 46.43762(b)(1)(iii), Plan Sponsor D maytreat Plans 501 and 502 (both self-insuredplans with a calendar year plan year) as asingle plan for purposes of calculating the feeimposed by section 4376.

Example 2. Same facts as Example 1,except Plan 503 is not a Plan that providesdental and vision benefits, but rather a planthat provides accident and health coveragesolely to employees who are working and

residing outside the United States and doesnot provide any benefits to employees whoare not working and residing outside theUnited States. Plan 503 is designedspecifically to provide coverage to employeesworking and residing outside the UnitedStates because it limits coverage to theseemployees. Therefore, in accordance with theexception described in 46.43761(b)(1)(ii)(C), Plan 503 is not an applicableself-insured health plan.

(2) Plan sponsor(i) In general. Thetermplan sponsormeans

(A) The employer, in the case of anapplicable self-insured health planestablished or maintained by a single

employer;(B) The employee organization, in thecase of an applicable self-insured healthplan established o

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