A new annual fee charged to health insurance plans and companies that self-insure took effect July 31.
The fee was created by the federal Affordable Care Act and will be used to fund a new federal initiative designed to study the effectiveness of health treatment and outcomes. Insurance companies and employers that self-insure will be charged $1 per person covered by their insurance plans.
“It’s something new, so I think there has been a fair amount of confusion and questions about how does this apply to me,” said Kevin Wadle, tax director for Clifton Allen Larson, a national public accounting firm based in Minneapolis. “Employers, including small employers, are being burdened by taxes and fees that they have never had to worry about before.”
Wadle said information about the new fee has not been widely publicized by the IRS and Obama administration. The form businesses must use to pay the fee was not issued by the IRS until June.
He said some of his clients mistakenly believed the new fee was also postponed for a year when the Obama administration decided in early July to unilaterally postpone other aspects of the Affordable Care Act.
But the new fee is still due by July 31.
For individuals who buy health insurance through a large provider such as Blue Cross, the fee will be incorporated in the overall purchase price of their health care plans. Businesses that self-insure will have to pay $1 for each person covered by their plans, which includes employees’ spouses and dependents.
Businesses that offer health reimbursement accounts or other flexible spending options will likely also have to pay the new fee.
Though the fee is nominal and won’t be felt much by most consumers, it does add a layer of paperwork—businesses that self-insure will have to fill out a new tax form previously only used by companies paying oil and gas excise taxes—and some additional costs.
“It’s another one of these nickel and dime taxes in the law,” said Cynthia Magnuson-Allen, spokeswoman for the National Federation of Independent Business, which is lobbying to repeal the health care law.
The IRS does not have projections for how much revenue the new $1 per person fee will generate, but it will be used to fund the Patient Centered Outcomes Research Initiative, which will study the effectiveness of treatment options and provide analysis of outcomes for Medicare and private insurance.
According to the PCORI website, it expects to receive $3.5 billion between now and 2019 to fund operations. It has already handed out $159.3 million to fund 126 research projects in 33 states, according to Christine Stencel, a spokeswoman for PCORI.
“By generating high-quality, evidence-based information about healthcare options, PCORI will help patients and their families, payers and purchasers, clinicians, and other stakeholders make better informed health and healthcare decisions,” Stencel wrote in an email.
The per-person rate will double to $2 in 2014, and after that it will be set by the federal government on an annual basis, meaning it could go even higher, Wadle said.
The fee is scheduled to end after 2019, when PCORI’s charter expires.
The new fee comes on the heels of the much-criticized medical device tax which kicked in earlier this year. That 2.3 percent tax is charged to manufacturers and importers on the sales of certain medical devices.
Eric Boehm ([email protected]) is a reporter for Watchdog.org, where this article first appeared.