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The Employer Comparative Effectiveness Research Fee


The Employer Comparative Effectiveness Research Fee

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Are your clients aware that under the PPACA they face a new fee called the Comparative Effectiveness Research fee with rule-making currently under way by the Internal Revenue Service (IRS)?

There is one employer advocacy group that is advocating on behalf of the business community to the IRS in hopes of making those new rules as easy and efficient as possible. That group is the ERISA Industry Committee (ERIC).

“The fee and the associated administrative costs are real and immediate, and apply at a time when ERIC’s members are struggling to cope with a mounting roster of expensive health mandates, as well as increasing health care costs,” ERIC President Mark Ugoretz says in a comment letter sent to the IRS and obtained by National Underwriter.

What is Comparative Effectiveness Research

The federal Agency for Health Care Research and Quality (AHRQ), conducts comparative effectiveness research of various medical interventions and publicly disseminates them. For the latest study and more information on AHRQ's comparative effectiveness research.

Fee Details

The IRS issued the notice to start the process of implementing Section 6301 of the Patient Protection and Affordable Care Act of 2010 (PPACA).

PPACA Section 6301 added Section 9511 – a provision creating a Patient-Centered Outcomes Research Trust Fund -- to the Internal Revenue Code (IRC) to provide funding for a new Patient-Centered Outcomes Research Institute (PCORI). The institute is charged with helping the government, private insurers, employers, consumers and providers determine which treatments offer good value for the money spent.

Starting in 2012, employers sponsoring group health plans must pay $1 per participant. The fee increases to $2 per participant in 2013, then to an amount indexed to national health expenditures thereafter. The comparative effectiveness fee phases out by 2019. Revenue from this fee will fund research to determine the effectiveness of various forms of medical treatment.

Because the PPACA expands Medicaid and the expansion of individual coverage with the health insurance exchanges; the PPACA is a costly endeavor to say the least. The Comparative Effectiveness Research fee therefore provides some revenue to make this work. Unfortunately it also may cause health insurance premiums to rise. There is no silver bullet in this that will increase revenue from employers and save them money on premiums.

If implemented on time, the fees will take effect for policy and plan years ending after Sept. 30, 2012. Therefore, most employer plans will be impacted by this on their January 1, 2013 renewal/ effective date for those plans that follow the calendar year.

ERIC is particularly concerned that the IRS will not make the new fee easy to administer in hopes of also avoiding duplication. ERIC says the IRS also should refrain from requiring employers to set up costly systems to determine the actual average number of lives covered, Ugoretz says in the ERIC letter.

ERIC's Recommendations

ERIC recommends that employers should be permitted to treat all accident and health benefits sponsored by an employer as one applicable self-insured plan for purposes of the fee, Ugoretz says.

“If employers are not permitted to aggregate plans, an employer might be required to pay a higher fee merely because it has structured its accident and health coverage as separate plans for unrelated business reasons,” Ugoretz says. That type of administrative efficiency is essential to ensure plans are not unnecessarily taxed on top of the fee they are required to pay based on the law's impelementation.

ERIC also recommends that the IRS provide at least two safe harbor methods that employers can use to determine the average number of covered lives, and that the safe harbor methods use assumptions that simplify the process of determining the number of participants and dependents enrolled in self-insured plans.

One safe harbor method proposed by ERIC would be based on use of the number of participants shown on a plan’s Form 5500 annual report.

The second safe harbor would permit an employer to count employees each month and then average the monthly totals over the course of a year, Ugoretz says.

The IRS should keep the rules for counting the number of beneficiaries especially simple, because that is a number often not tracked by employers, Ugoretz says.


The IRS regulations enacted by Congress and the agency have done little to make employer's and tax payers lives simpler. Government regulation just doesn't work that way, so what are the chances that these new regulations will be easy to deal with and free from complications?

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