The consumer-directed health care benefits community received some unwelcome news from the Internal Revenue Service recently, when the agency announced its intention to impose a fee on health reimbursement arrangements beginning in 2013. 

The fee is yet another of the many provisions of the Patient Protection and Affordable Care Act that flew under the radar during its passage as other provisions of the bill received much more public scrutiny. And, as with many provisions of PPACA, what this provision will do in practice may not have been exactly what PPACA’s supporters had in mind. 

In short, PPACA created the Patient-Centered Outcomes Research Institute, a quasi-governmental think tank devoted to evaluating the relative effectiveness of various medical treatments and procedures. The theory is that the PCORI will discover ways to make health care less expensive. Ironically, this will be accomplished by making health plans more expensive: Plans must pay a $1 per participant fee to the federal government to fund the Institute. This fee may increase to $2 or more per participant in later years. 

PPACA imposes this fee on insured plans as well as “self-insured health plans.” Even though it is probably fair to say that PPACA supporters did not have HRAs specifically in mind with regard to this particular provision, IRS has determined that a reasonable statutory interpretation brings HRAs under the “self-insured health plans” umbrella, since HRAs are, after all, health plans funded by employers. At present, the fee is scheduled to become effective for policy and plan years ending on or after Oct. 1, 2012. IRS plans to revise its Form 720 to reflect these rules. 

Is there any good news? Some. For one thing, plan sponsors will only have to count employee-participants as “participants” for the purpose of calculating the HRA fee rather than all persons benefitting from the plan. In contrast, typical insurance plans are required to count everyone under the plan. Thus, a family of four covered under an insurance plan would result in a $4 fee ($1 x four participants) while the same family covered by an HRA would result in only a $1 fee ($1 x the employee-participant only). 

For another, IRS will not impose the fee on HRAs which are integrated with another self-insured plan (such as a self-insured in-house health plan) offered by the same plan sponsor, since this would result in a “double-payment” of the fee. Unfortunately, this exception does not apply to HRAs offered to employees in conjunction with typical insurance plans (what are often referred to as “integrated HRAs”) because—according to the IRS—PPACA’s statutory structure treats insured plans and self-insured plans separately. 

One last piece of good news: These are proposed regulations only, which means that IRS will be taking public comments before they become absolutely final. Our partners and clients are strongly encouraged to submit their comments electronically through the Federal eRulemaking Portal at www.regulations.gov. Be sure to reference IRS REG-136008-11. Written or electronic comments must be received by July 16. 

Here are a few important guidelines when commenting: 

Be respectful. This is not an “IRS fee.” This is a fee created by the health care reform law which the IRS is required by the law to enforce. They are just doing their job.  

Acknowledge IRS’ previous accommodations. Be sure to thank IRS for the accommodations it has already made with regard to HRAs. 

Don’t criticize the health care reform law. Save those criticisms for the politicians who brought the law into existence. As stated above, this is something IRS is required to do under the law. In that sense, IRS is as burdened by it as all of us are.  

Don’t just be “anti-tax.” For obvious reasons, IRS isn’t particularly interested in complaints about taxes in general (e.g., “Taxes are already too high!” etc.) Again, save that for the politicians. Focus instead on the particular problems created by this particular fee on HRAs. 

Offer a reasonable solution/compromise. Contrary to what many believe, the IRS is usually quite open to ideas from the public so long as those ideas are reasonable and compliant with the relevant statutory language. 

Working together, perhaps those of us in the consumer-directed health care community can get some relief from yet another unpleasant PPACA surprise.