[Federal Register Volume 77, Number 235 (Thursday, December 6, 2012)]
[Rules and Regulations]
[Pages 72721-72736]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29325]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 40, 46, and 602

[TD 9602]
RIN 1545-BK59


Fees on Health Insurance Policies and Self-Insured Plans for the 
Patient-Centered Outcomes Research Trust Fund

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations that implement and 
provide guidance on the fees imposed by the Patient Protection and 
Affordable Care Act on issuers of certain health insurance policies and 
plan sponsors of certain self-insured health plans to fund the Patient-
Centered Outcomes Research Trust Fund. These final regulations affect 
the issuers and plan sponsors that are directed to pay those fees.

DATES: Effective Date: These regulations are effective December 6, 
2012.
    Applicability Dates: These regulations apply to policy and plan 
years ending on or after October 1, 2012, and before October 1, 2019.

FOR FURTHER INFORMATION CONTACT: R. Lisa Mojiri-Azad at (202) 622-6080 
(regarding self-insured health arrangements) or Rebecca L. Baxter at 
(202) 622-3970 (regarding health insurance policies).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-2238. The collections of information 
in these final regulations are in Sec.  46.4375-1(c)(2)(iv) (use of the 
snapshot method to calculate the fee under section 4375); Sec.  
46.4375-1(c)(2)(v) (use of the National Association of Insurance 
Commissioners (NAIC) Supplemental Health Care Exhibit to calculate the 
fee under section 4375); Sec.  46.4375-1(c)(2)(vi) (use of certain 
state forms to calculate the fee under section 4375); Sec.  46.4376-
1(b)(2)(G) (identification or designation of a plan sponsor under the 
governing plan document for certain applicable self-insured health 
plans); Sec.  46.4376-1(c)(2)(iv) (use of snapshot method to calculate 
the fee under section 4376); and Sec.  46.4376-1(c)(2)(v) (use of the

[[Page 72722]]

Form 5500, ``Annual Return/Report of Employee Benefit Plan,'' or Form 
5500-SF, ``Short Form Annual Return/Report of Employee Benefit Plan'' 
to calculate the fee under section 4376).
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains final amendments to 26 CFR part 40 (Excise 
Tax Procedural Regulations) and 26 CFR part 46 (relating to excise 
taxes imposed on policies issued by foreign insurers and obligations 
not in registered form) to implement the requirements under sections 
4375 through 4377 of the Internal Revenue Code (Code). The Treasury 
Department and the IRS issued proposed regulations under sections 4375 
through 4377 on April 17, 2012 (77 FR 22,691). Sections 4375 and 4376 
of the Code impose fees on issuers of specified health insurance 
policies and plan sponsors of applicable self-insured health plans, and 
section 4377 contains special rules that apply to these issuers and 
plan sponsors with respect to these fees. Sections 4375, 4376, and 4377 
were added to the Code by section 6301 of the Patient Protection and 
Affordable Care Act (Affordable Care Act), Public Law 111-148 (124 
Stat. 119 (2010)).
    The Affordable Care Act provides for the establishment of the 
private, nonprofit corporation, the Patient-Centered Outcomes Research 
Institute (the ``Institute''). Through research, the Institute will 
assist patients, clinicians, purchasers, and policy-makers in making 
informed health decisions by advancing the quality and relevance of 
evidence-based medicine through the synthesis and dissemination of 
comparative clinical effectiveness research findings. The statute 
specifically prohibits the Secretary of Health and Human Services (HHS) 
from using the evidence or findings of the research conducted in 
determining coverage, reimbursement, or incentive programs unless it is 
through an iterative and transparent process which includes public 
comment and considers the effect on subpopulations. Nothing under this 
provision allows the Secretary of HHS to deny coverage of items or 
services solely on the basis of comparative clinical effectiveness 
research. The statute provides that the Institute will not develop a 
dollars-per-quality-life-year estimate as a threshold to establish 
effective or recommended care.
    Section 6301 of the Affordable Care Act amended the Code by adding 
new section 9511 to establish the Patient-Centered Outcomes Research 
Trust Fund (the ``Trust Fund''), which is the funding source for the 
Institute. Section 6301 of the Affordable Care Act also added new Code 
sections 4375, 4376, and 4377 to provide a funding source for the Trust 
Fund that is to be financed, in part, by fees to be paid by issuers of 
specified health insurance policies and sponsors of applicable self-
insured health plans.

Statutory Provisions

    Section 4375 imposes a fee on an issuer of a specified health 
insurance policy for each policy year ending on or after October 1, 
2012, and before October 1, 2019. Under section 4375(a), the fee is two 
dollars (one dollar in the case of policy years ending before October 
1, 2013) multiplied by the average number of lives covered under the 
policy. Under section 4375(d), for policy years ending on or after 
October 1, 2014, the fee is increased based on increases in the 
projected per capita amount of National Health Expenditures. Section 
4375(b) provides that the fee imposed by section 4375(a) shall be paid 
by the issuer of the policy.
    Section 4375(c) defines a specified health insurance policy as any 
accident or health insurance policy (including a policy under a group 
health plan) issued with respect to individuals residing in the United 
States. Section 4375(c)(2) excludes from a specified health insurance 
policy any insurance if substantially all of its coverage is of 
excepted benefits described in section 9832(c). Section 4375(c)(3) 
provides that a specified health insurance policy includes any prepaid 
health coverage arrangement described in section 4375(c)(3)(B). An 
arrangement is described in section 4375(c)(3)(B) if, under the 
arrangement, fixed payments or premiums are received as consideration 
for a person's agreement to provide or arrange for the provision of 
accident or health coverage to residents of the United States, 
regardless of how the coverage is provided or arranged to be provided.
    Section 4376 imposes a fee on a plan sponsor of an applicable self-
insured health plan for each plan year ending on or after October 1, 
2012, and before October 1, 2019.\1\ Under section 4376(a), the fee is 
two dollars (one dollar for plan years ending before October 1, 2013) 
multiplied by the average number of lives covered under the plan. Under 
section 4376(d), for plan years ending on or after October 1, 2014, the 
fee is increased based on increases in the projected per capita amount 
of National Health Expenditures. Section 4376(b)(1) provides that the 
fee imposed by section 4376(a) shall be paid by the plan sponsor.
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    \1\ The Department of Labor has advised that, because the fee is 
imposed on the plan sponsor under section 4376 (instead of the 
plan), paying the PCORI fee generally does not constitute a 
permissible expense of the plan for purposes of Title I of the 
Employee Retirement Income Security Act (ERISA), although special 
circumstances may exist in limited situations. The Department of 
Labor will provide guidance in the near future on PCORI fee payments 
under Title I of ERISA on its Web site, www.dol.gov/ebsa.
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    Section 4376(b)(2) defines a plan sponsor as the employer in the 
case of a plan established or maintained by a single employer, or the 
employee organization in the case of a plan established or maintained 
by an employee organization. Section 4376(b)(2) also provides that, in 
the case of (1) a plan established or maintained by two or more 
employers or jointly by one or more employers and one or more employee 
organizations, (2) a multiple employer welfare arrangement, or (3) a 
voluntary employees' beneficiary association described in section 
501(c)(9), the plan sponsor is the association, committee, joint board 
of trustees, or other similar group of representatives of the parties 
who establish or maintain the plan. Section 4376(b)(2) further provides 
that in the case of a plan established or maintained by a rural 
electric cooperative (as defined in section 3(40)(B)(iv) of the 
Employee Retirement Income Security Act of 1974 (ERISA)) or rural 
telephone cooperative association (as defined in section 3(40)(B)(v) of 
ERISA), the plan sponsor is the cooperative or association that 
established or maintained the plan.
    Section 4376(c) defines an applicable self-insured health plan as 
any plan for providing accident or health coverage if any portion of 
the coverage is provided other than through an insurance policy, and 
the plan is established or maintained (1) By one or more employers for 
the benefit of their employees or former employees, (2) by one or more 
employee organizations for the benefit of their members or former 
members, (3) jointly by one or more employers and one or more employee 
organizations for the benefit of employees or former employees, (4) by 
a voluntary employees' beneficiary

[[Page 72723]]

association described in section 501(c)(9), (5) by any organization 
described in section 501(c)(6), or (6) if not previously described, by 
a multiple employer welfare arrangement (as defined in section 3(40) of 
ERISA), a rural electric cooperative (as defined in section 
3(40)(B)(iv) of ERISA), or a rural telephone cooperative association 
(as defined in section 3(40)(B)(v) of ERISA).
    Section 4377 includes definitions and special rules that apply for 
purposes of sections 4375 and 4376. Section 4377(a)(1) defines accident 
and health coverage as any coverage that, if provided by an insurance 
policy, would cause the policy to be a specified health insurance 
policy (as defined in section 4375(c)).
    Section 4377(b)(1)(B) provides that ``[n]otwithstanding any other 
law or rule of law, governmental entities shall not be exempt from'' 
the fees imposed by sections 4375 and 4376 unless the policy or plan is 
an exempt governmental program. Section 4377(b)(3) defines an exempt 
governmental program as (1) any insurance program established under 
title XVIII of the Social Security Act (42 U.S.C. 1395 et. seq.) 
(Medicare), (2) the medical assistance program established by title XIX 
(42 U.S.C. 1396 et. seq.) (Medicaid) or title XXI of the Social 
Security Act (42 U.S.C. 1397aa et. seq.) (Children's Health Insurance 
Program), (3) any program established by Federal law for providing 
medical care (other than through insurance policies) to individuals (or 
the spouses and dependents thereof) by reason of such individuals being 
members of the Armed Forces of the United States or veterans, and (4) 
any program established by Federal law for providing medical care 
(other than through insurance policies) to members of Indian tribes (as 
defined in section 4(d) of the Indian Health Care Improvement Act, 25 
U.S.C. 1603). Under these special rules, a governmental entity 
(including a federally recognized Indian tribal government) that is the 
plan sponsor of an applicable self-insured health plan that does not 
meet the definition of an exempt governmental program must pay the fee 
imposed by section 4376.
    Section 4377(c) provides that the fees imposed by sections 4375 and 
4376 are treated as taxes for purposes of subtitle F of the Code 
(sections 6001 through 7874 that set forth the rules of federal tax 
procedure and administration).

Notice 2011-35 and Proposed Regulations

    On June 8, 2011, the IRS released Notice 2011-35 (2011-25 IRB 879), 
which requested comments on how the fees imposed under sections 4375 
and 4376 (referred to collectively as the PCORI fee) should be 
calculated and paid, including possible rules and safe harbors. The 
Treasury Department and the IRS received numerous comments in response 
to Notice 2011-35 and considered all comments in issuing proposed 
regulations under sections 4375, 4376, and 4377 (77 FR 22,691). The 
Treasury Department and the IRS received 26 written comments on the 
proposed regulations. After consideration of the comments, these final 
regulations adopt the provisions of the proposed regulations with 
certain modifications, the most significant of which are highlighted in 
the Summary of Comments and Explanation of Revisions. See Sec.  
601.601(d)(2).

Summary of Comments and Explanation of Revisions

I. Health Insurance Policies Subject to the PCORI Fee

    Section 4375(a) imposes a fee on an issuer of a specified health 
insurance policy for each policy year ending on or after October 1, 
2012, and before October 1, 2019. Section 46.4375-1(b)(1) of these 
regulations defines a specified health insurance policy as any accident 
and health insurance policy (including a policy under a group health 
plan) issued with respect to individuals residing in the United States. 
Section 46.4375-1(b)(1)(ii) provides exceptions to the term specified 
health insurance policy. Section 4375(c)(2) and Sec.  46.4375-
1(b)(1)(ii)(A) provide an exclusion for any insurance if substantially 
all of its coverage is of excepted benefits described in section 
9832(c). While Sec.  46.4376-1(b)(ii)(B) excludes from the definition 
of applicable self-insured health plan an employee assistance program 
(EAP), disease management program, or wellness program, if the program 
does not provide significant benefits in the nature of medical care or 
treatment, no similar exclusion was included in the proposed 
regulations for a specified health insurance policy.
    One commentator explained that California and Nevada regulate EAPs 
that provide for four or more counseling, treatment, or therapy visits 
as insurance thereby requiring the issuance of an insurance policy. The 
commentator argued that in any other state, identical EAPs would be 
excluded from the definition of applicable self-insured plan and not 
subject to the PCORI fee. In recognition of the unique California and 
Nevada requirements that certain employee assistance plans be treated 
as insurance, the commentator asked that an exception be added to the 
definition of specified health insurance policy to exclude those EAPs. 
In response to this comment, these final regulations provide that the 
definition of a specified health insurance policy does not include any 
insurance policy to the extent that the policy provides for an EAP, 
disease management program, or wellness program, if the program does 
not provide significant benefits in the nature of medical care or 
treatment. No inference is intended whether the specific health 
benefits cited by the commentator constitute insignificant benefits.

II. Retiree Coverage and Retiree-Only Plans

    As noted in the preamble to the proposed regulations, sections 4375 
and 4376 may apply to a retiree-only plan because, although group 
health plans that have fewer than two participants who are current 
employees (such as retiree-only plans) are excluded from the 
requirements of chapter 100 (setting forth requirements applicable to 
group health plans such as portability, nondiscrimination, and market 
reform requirements), this exclusion does not apply to sections 4375 
and 4376 because these sections are in chapter 34. In addition, section 
4376(c)(2)(A) states explicitly that an applicable self-insured health 
plan includes a plan established or maintained by one or more employers 
for the benefit of their employees or former employees. Some 
commentators requested that the final regulations exempt from the PCORI 
fee retiree coverage on public policy grounds, but generally agreed 
that a retiree-only insured plan or retiree coverage under an 
applicable self-insured health plan may be subject to the PCORI fee. 
Consistent with the statutory language, the final regulations apply the 
PCORI fee to specified health insurance policies or applicable self-
insured health plans that provide accident and health coverage to 
retirees, including retiree-only policies and plans.

III. COBRA Coverage

    Commentators requested clarification of whether sections 4375 and 
4376 apply to continuation coverage required under the Consolidated 
Omnibus Budget Reconciliation Act of 1985 (COBRA) or similar 
continuation coverage under other federal law or under state law 
(referred to collectively as ``continuation coverage'') and asked that 
the final regulations explicitly exclude continuation coverage from 
application of those sections. If the coverage provided under the

[[Page 72724]]

continuation coverage arrangement is accident and health coverage, 
there is no basis to exclude the arrangement from the PCORI fee. The 
requirements of sections 4375 and 4376 apply to specified health 
insurance policies that provide accident and health coverage and plans 
that are applicable self-insured health plans, regardless of whether 
provided through the individual market, to an active employee as part 
of a group health plan, or as continuation coverage to an active 
employee, former employee, or otherwise qualifying beneficiary. In 
response to comments, these final regulations state explicitly that 
continuation coverage must be taken into account in determining the 
PCORI fee, unless the arrangement is otherwise excluded.

IV. Lives Taken Into Account in Calculating the Fee

    The fee imposed on an issuer of a specified health insurance policy 
under section 4375 is based on the average number of lives covered 
under the policy during the policy year. The fee imposed on a plan 
sponsor of an applicable self-insured health plan under section 4376 is 
based on the average number of lives covered under the plan during the 
plan year.
    Commentators acknowledged that separate fees are imposed by 
sections 4375 and 4376, but argued that this only reflects 
congressional intent for the PCORI fee to extend to both insured and 
self-insured arrangements. Several commentators requested that the 
final regulations provide that the PCORI fee does not apply multiple 
times if accident and health coverage is provided to one individual 
through more than one policy or self-insured arrangement (for example, 
where an individual is covered by a fully-insured major medical 
insurance policy and a self-insured prescription arrangement). 
Commentators also requested that the final regulations clarify that the 
issuer or plan sponsor is required to pay only once with respect to 
each covered life under the specified health insurance policy or 
applicable self-insured health plan.
    The final regulations do not adopt the requested change that the 
fee apply only once with respect to each covered life because it would 
be contrary to the explicit statutory language applying the fee to each 
specified health insurance policy or applicable self-insured health 
plan. For example, for an employee covered by both a group insurance 
policy and a health reimbursement arrangement (HRA), the group 
insurance policy falls within the definition of a specified health 
insurance policy to which section 4375 applies a fee, and the HRA falls 
within the definition of an applicable self-insured health plan, to 
which section 4376 applies a fee to the plan sponsor. Because there are 
no allocation rules or other method of applying the fee on an 
aggregated basis in the statute or legislative history, there is no 
evidence that the statutory provisions were intended to be applied in a 
manner that aggregated these separate arrangements for a single covered 
individual and allocated the fee between them. However, in response to 
comments, the final regulations permit an applicable self-insured 
health plan that provides accident and health coverage through fully-
insured options and self-insured options to determine the fee imposed 
by section 4376 by disregarding the lives that are covered solely under 
the fully-insured options. (See also discussion under section V of this 
preamble relating to the special rule for plan sponsors that establish 
or maintain multiple self-insured arrangements with the same plan year 
and section VI of this preamble relating to special rules for health 
reimbursement arrangements and flexible spending arrangements). Except 
as otherwise provided, the final regulations do not permit an issuer or 
plan sponsor to disregard a covered life merely because that individual 
is also covered under another specified health insurance policy or 
applicable self-insurance plan.

V. Lives Covered Under Multiple Policies or Plans

    Section 46.4376-1(b)(1)(iii) of the proposed regulations provided 
that for purposes of section 4376, two or more arrangements established 
or maintained by the same plan sponsor that provide for accident and 
health coverage other than through an insurance policy and that have 
the same plan year may be treated as a single applicable self-insured 
health plan for purposes of calculating the fee imposed by section 
4376.
    A few commentators described self-insured arrangements that are 
coordinated with an underlying health plan, including a plan of an 
unrelated entity. Commentators pointed to collectively bargained 
arrangements under which the union sponsors a prescription-only or 
premium-only plan that is tied to an insured health plan of the 
employers that have entered into a collective bargaining agreement 
between the employee representatives and one or more employers. These 
commentators requested that the final regulations include special rules 
that exempt from the PCORI fee certain applicable self-insured health 
plans that are established or maintained by a union because the lives 
covered under the union plan are taken into account for the fee imposed 
on the employer, if the employer's plan is also an applicable self-
insured health plan, or the issuer, if the employer's plan is an 
insured plan. One commentator requested that the final regulations 
permit collectively bargained plans to be aggregated with the 
employer's plan, without regard to whether they have the same sponsor 
or plan year, for purposes of determining the fee with respect to the 
same lives covered.
    One commentator pointed out that the Medical Loss Ratio (MLR) 
Interim Final Rule issued by HHS allows affiliated issuers to report 
their premiums and expenditures on an aggregate basis if one issuer 
provides in-network coverage and the second provides out-of network 
coverage for one group health plan. The commentator requested the same 
approach provided in Sec.  46.4376-1(b)(1)(iii) (permitting two or more 
applicable self-insured health plans with the same plan sponsor and 
same plan year to be treated as a single applicable self-insured health 
plan) be provided for group health plans that provide separate benefits 
to a participant or beneficiary during the same plan year under two or 
more insurance policies or through a self-insured plan and an insured 
plan. Specifically, the commentator suggested that if insurance 
policies covering the same individual qualify for aggregation under the 
MLR rebate reporting rules, the IRS should allow issuers to aggregate 
their policies for purposes of the PCORI fee.
    Sections 4375 and 4376 specifically apply the PCORI fee to, 
respectively, an issuer of a specified health insurance policy and to 
the sponsor of an applicable self-insured health plan (subject to 
certain exceptions). The commentators have shown no statutory basis for 
combining arrangements involving different issuers or different plan 
sponsors. The statute specifically contemplated that different 
arrangements having different plan sponsors would be subject to 
separate fees imposed by section 4376. See section 4376(b)(2) (naming 
the different types of plan sponsors for different types of applicable 
self-insured health plans). Commentators, however, point to the 
proposed rule, adopted in these final regulations, permitting a plan 
sponsor to treat two different applicable self-insured health plans 
with the same plan year and plan sponsor as one plan as the basis for 
adopting the suggested

[[Page 72725]]

change. There is no significant difference between that arrangement and 
a single plan, or ``umbrella'' plan containing both self-insured 
arrangements. In contrast, if the two arrangements are sponsored by two 
different plan sponsors, there is no single plan equivalent. 
Accordingly, this suggestion is not adopted in the final regulations.

VI. Health Reimbursement Arrangements (HRAs) and Flexible Spending 
Arrangements (FSAs)

    Section 46.4376-1(b)(1)(ii) of the proposed regulations defined an 
applicable self-insured health plan to include HRAs (as described in 
Notice 2002-45 (2002-2 CB 93)) and health flexible spending 
arrangements (as described in section 106(c)(2)) (FSAs) that do not 
satisfy the requirements to be treated as an excepted benefit (within 
the meaning of section 9832(c) and Sec.  54.9831-1(c)(3)(v)). The 
proposed regulations also provided additional rules that permitted the 
plan sponsor to assume one covered life for each employee with an HRA 
and for each employee with an FSA that is not an excepted benefit. The 
final regulations retain these rules. See Sec.  601.601(d)(2).
    Commentators requested that the definition of applicable self-
insured health plan be revised to exclude all HRAs, or alternatively 
that the final regulations exclude from the definition HRAs that are 
``integrated'' with coverage under a self-insured or fully-insured 
arrangement. One commentator requested that the final regulations 
exempt from the definition of applicable self-insured health plan 
premium-only HRAs for Medicare-eligible retirees. As discussed in the 
preamble to the proposed regulations, an HRA is not subject to a 
separate fee under section 4376 if the plan sponsor also maintains a 
separate applicable self-insured health plan with a calendar year 
(referred to as the other plan). In such circumstances, the plan 
sponsor is permitted to treat the HRA and other plan as a single 
applicable self-insured health plan for purposes of section 4376 and 
therefore determine and pay the PCORI fee once with respect to each 
life covered under the HRA and other plan. Because the statutory 
structure provides that the fee imposed by section 4375 is separate 
from the fee imposed by section 4376, these regulations do not permit a 
plan sponsor to treat the HRA and a fully-insured plan as a single plan 
or arrangement for purposes of the PCORI fee, and these final 
regulations include additional examples to clarify the application of 
the PCORI fee to an HRA, including an HRA and other plan.
    For the same reasons, the final regulations do not adopt the 
request to provide that the PCORI fee does not apply to an employee's 
FSA that does not meet the requirements for being an excepted benefit 
if the employee is covered by a major medical plan.

VII. Determination of Whether an Individual Is Residing in the United 
States

    The term specified health insurance policy includes only an 
accident and health insurance policy that is issued with respect to an 
individual residing in the United States. The final regulations adopt 
the rule in the proposed regulations that provides that if the address 
on file with the issuer or plan sponsor for the primary insured is 
outside of the United States, the issuer or plan sponsor may treat the 
primary insured and the primary insured's spouse, dependents, or other 
beneficiaries covered under the policy as having the same place of 
abode and not residing in the United States. For this purpose, the term 
primary insured refers to the individual covered by the policy whose 
eligibility for coverage was not due to his or her status as a spouse, 
dependent, or other beneficiary of another insured individual. Also as 
provided in the proposed regulations, these final regulations clarify 
that for purposes of the PCORI fee, ``an individual residing in the 
United States'' means an individual who has a place of abode in the 
United States.
    Two commentators suggested that an issuer or plan sponsor should be 
permitted to find that a primary insured who is on a temporary U.S. 
visa does not have a place of abode in the United States. The 
commentators argued that because many (if not most) health insurance 
issuers offering expatriate plans request, for compliance purposes, an 
overview of citizenship and visa status from an employee covered under 
an employer-sponsored international plan, visa information and 
citizenship information should be available to them and can be relied 
upon in determining whether the employee's place of abode is the United 
States or elsewhere.
    The final regulations do not adopt this requested change. To 
exclude covered individuals who are residing in the United States would 
be contrary to Congressional intent that the PCORI fee applies to 
policies and plans that cover individuals residing in the United 
States. An individual on a temporary U.S. visa who has a place of abode 
in the United States is residing in the United States. For purposes of 
sections 4375, 4376, and 4377, the determination of place of abode is 
based on the most recent address on file with the issuer or plan 
sponsor.

VIII. Self-Insured Expatriate Plans

    As in the proposed regulations, these final regulations provide 
that the term specified health insurance policy does not include any 
group policy issued to an employer if the facts and circumstances show 
that the group policy was designed and issued specifically to cover 
primarily employees who are working and residing outside of the United 
States. One commentator requested clarification that similar self-
insured plans are also excepted for purposes of the fee under section 
4376. The final regulations clarify that the term applicable self-
insured health plan does not include a self-insured plan if the facts 
and circumstances show that the self-insured plan was designed 
specifically to cover primarily employees who are working and residing 
outside of the United States.

IX. Additional Rules for Determining the Applicable Fee

    Under the proposed regulations, issuers and plan sponsors were 
permitted to use alternative methods for determining the average number 
of lives for the year. Issuers could choose any of four alternative 
methods to determine the average number of lives covered under policies 
that it issues for purposes of the fee imposed by section 4375: (1) The 
actual count method, (2) the snapshot method, (3) the member months 
method, or (4) the state form method. While the actual count and 
snapshot methods count lives covered on the policy-by-policy basis for 
each policy having a policy year that ends in the reporting period 
(which is based on the calendar year), the member months or state form 
methods count all lives covered during the calendar year for all 
policies in effect during the calendar year irrespective of when actual 
policy years end. Plan sponsors could use one of three alternative 
methods to determine the average number of lives covered under a plan 
for purposes of the fee imposed by section 4376: (1) The actual count 
method, (2) the snapshot method, or (3) the Form 5500 method.
    One of the permitted methods--the ``snapshot method''--would have 
required issuers and plan sponsors to determine the average lives by 
adding the number of lives covered on one date (or an equal number of 
dates) in each quarter during the plan year or policy year and dividing 
that sum by the number of dates on which the count was made. 
Commentators suggested that issuers and plan sponsors using the

[[Page 72726]]

snapshot method should not be required to use the same date for each 
quarter, but should be permitted to use different dates to determine 
the number of lives covered during a quarter to address holidays, 
weekend days, or other similar issues. The Treasury Department and the 
IRS recognize the need for flexibility but also the need to avoid 
permitting issuers and plan sponsors to pick the most advantageous 
dates (that is, the dates on which the number of lives covered is the 
lowest so that under the facts and circumstances the snapshot method 
does not fairly approximate the average number of lives covered for the 
applicable year). In response to these comments, the final regulations 
require an issuer or a plan sponsor that uses the snapshot method to 
determine the counts used based on a date during the first, second, or 
third month of each quarter (or more dates in each quarter if an equal 
number of dates is used for each quarter). Each date used for the 
second, third, and fourth quarters must be within three days of the 
date in that quarter that corresponds to the date used for the first 
quarter, and all dates used must fall within the same policy year or 
plan year. If an issuer or plan sponsor uses multiple dates for the 
first quarter, the issuer or plan sponsor must use dates in the second, 
third, and fourth quarters that correspond to each of the dates used 
for the first quarter or are within three days of such corresponding 
dates, and all dates used must fall within the same policy year or plan 
year. The 30th and 31st day of a month are treated as the last day of 
the month for purposes of determining the corresponding date for any 
month that has fewer than 31 days (for example, if either March 30 or 
31 are used as snapshot dates for a calendar year plan, June 30 is the 
corresponding date for the second quarter). Thus, for example, under 
the final regulations, if a plan sponsor uses the snapshot method to 
determine the average number of lives covered under an applicable self-
insured health plan with a calendar year plan year and uses Monday, 
January 7, 2013, as the counting date for the first quarter, the plan 
sponsor may use any date beginning with Thursday, April 4, 2013, and 
ending with Wednesday, April 10, 2013, as the counting date for the 
second quarter (because all of those days are within three days of 
April 7, 2013, the date that corresponds to the January 7, 2013 
counting date for the first quarter).
    One commentator stated that the actual count and snapshot methods 
may pose significant operational challenges for many issuers. Because 
these methods require a determination of the number of lives covered by 
reference to the policy year for each health insurance policy that is 
subject to the fee, the commentator anticipates that issuers with a 
significant number of insurance policies that have policy years that 
begin at different dates during a calendar year will have difficulty 
implementing this approach. The commentator suggested that, regardless 
of the actual policy year, issuers who choose to use the actual count 
method should be permitted to measure lives covered on all days of a 
calendar year and then divide the result by 365. The commentator also 
suggested that, regardless of the actual policy year, issuers who 
choose to use the snapshot method should be permitted to measure lives 
covered using calendar year quarters and then average the results.
    The final regulations do not adopt this requested change. The fee 
imposed by section 4375 applies to policies based on their policy year. 
For administrative ease and to facilitate the use of available 
information that is compiled by issuers, these regulations provide the 
member months method and the state form method as alternatives for all 
policies in effect during a calendar year. Under each of these 
alternatives, the data permitted to be used is already reported by the 
issuer based on the calendar year. Issuers may use calendar year 
information in lieu of policy year information only if they use the 
member months method or the state form method.
    The member months data and the data reported on state forms are 
based on the calendar year. To adjust for the fee being applicable to 
policy years ending after September 30, 2012, but before January 1, 
2013, and after December 31, 2018, but before October 1, 2019, these 
final regulations adopt the pro rata approach set out in the proposed 
regulations for calculating the average number of lives covered using 
the member months method or the state form method for 2012 and 2019. 
For example, the member months number for 2012 is divided by 12 and the 
resulting number is multiplied by one-quarter to arrive at the average 
number of lives covered for October through December 2012. The proposed 
regulations further treated the amount calculated under this pro rata 
approach as the average number of lives covered for policies with 
policy years that end on or after October 1, 2012, and before January 
1, 2013. Similar rules are provided for 2019.
    Commentators suggested that the special pro rata approach for 
calculating the average number of lives covered using the member months 
method or the state form method for 2012 and 2019 should be applied to 
all years the fee is in effect, to appropriately reflect the change in 
the fee during each of such intervening years. One commentator argued 
that this revision is needed to prevent issuers that use these methods 
from being unfairly penalized by paying the rate determined as of 
December 31 of each year, resulting in an unanticipated higher 
liability for an issuer using those methods.
    The final regulations do not adopt this requested change. The 
special pro rata approach for calculating the average number of lives 
covered was the least administratively burdensome way for the first and 
last policy years to which the fee applies to incorporate data from the 
NAIC annual report and similar state reporting requirements with the 
applicability dates for the PCORI fee related to policy years ending in 
2012 and 2019. Other years are not affected by the applicability date 
issues. In addition, issuers are not required to use the member months 
or state form method and can use another permissible method.

X. Plan Years Subject to the PCORI Fee

    The fee imposed by section 4376 applies to plan years ending on or 
after October 1, 2012, and before October 1, 2019. Under the proposed 
regulations, an applicable self-insured health plan was required to 
determine the fee using the applicable dollar amount that applies for 
the plan year and the average number of lives covered during the plan 
year. Unlike the section 4375 fee, which is based on policy years, the 
application and amount of the section 4376 fee is based on the 
applicable dollar amount under section 4376 that is in effect on the 
last day of the plan year. One commentator requested additional 
examples illustrating the plan years covered by the fee, including the 
first plan year to which the PCORI fee applies. In response, Sec.  
46.4376-1(a) of the final regulations includes examples illustrating 
the plan years (calendar and fiscal years) subject to the PCORI fee and 
the applicable dollar amount that must be used to determine the section 
4376 fee for that plan year.

XI. Reporting and Payment Deadline

    Consistent with the proposed regulations, these final regulations 
require an issuer of a specified health insurance policy and plan 
sponsor of an applicable self-insured health plan to report and pay the 
PCORI fee for a policy year or plan year no later than July 31 of the 
year following the last day of the policy or plan year.

[[Page 72727]]

    One commentator asked that the final regulations provide that the 
reporting and payment due date for a plan sponsor that uses the Form 
5500 method to determine the PCORI fee be the due date (including 
extensions) for the plan's Form 5500. The extended due date for a Form 
5500 for a plan with a calendar year plan year is generally October 15 
of the following year. As discussed earlier in this preamble, the 
Institute is funded in part from the PCORI fee. Under current rules, 
the PCORI fee ceases to apply after the end of the last policy and plan 
year ending before October 1, 2019, (with a due date of July 31, 2020) 
and funding for the Institute terminates on September 30, 2019. This 
lag between the last year of the PCORI fee (policy and plan years 
ending before October 1, 2019) and the proposed due date for the fee 
for the last year (July 31, 2020) means that the PCORI fee collected 
for the last year will not be available to the Institute. A delay for 
policy or plan years ending in years before 2019, as requested, would 
permit the PCORI fee for the policy or plan year ending during 2018 to 
be paid after September 30, 2019, and result in the Institute losing an 
additional year of funding. Accordingly, the Treasury Department and 
IRS have determined that delaying the proposed due date would result in 
additional complications and burdens for the Institute. Thus, these 
final regulations retain the proposed rule set forth in Sec.  
40.6071(a)-1(c) that all plan sponsors and issuers report and pay the 
PCORI fee no later than July 31 of the calendar year following the last 
day of the policy or plan year.

XII. Correction and Amendments of Form 720

    One commentator requested that the final regulations provide that 
plan sponsors may correct, without penalty, inadvertent errors if 
correction is within a specified period or if the error is de minimis. 
These final regulations do not adopt this change and, therefore, do not 
explicitly address corrections. As discussed in the preamble to the 
proposed regulations, the PCORI fee must be reported and paid on the 
Form 720, ``Quarterly Federal Excise Tax Return.''
    The applicable penalties related to late filing of the applicable 
form or late payment of the applicable fee, however, may be waived or 
abated if the issuer or plan sponsor has reasonable cause and the 
failure was not due to willful neglect. See Sec.  301.6651-1(c) 
relating to rules for showing of reasonable cause. Issuers and plan 
sponsors may use Form 720X, ``Amended Quarterly Federal Excise Tax 
Return,'' to make adjustments to liabilities reported on a previously 
filed Form 720, including adjustments that result in an overpayment.

XIII. Special Rules for First Year Fee Is in Effect

    The Treasury Department and the IRS recognized when issuing the 
proposed regulations that in certain instances the policy or plan year 
to which the PCORI fee would apply had already commenced, and therefore 
that transition relief was appropriate for purposes of counting lives 
covered under the policy or plan during the period before the issuance 
of the proposed regulations. Two commentators requested additional 
transition relief, including extending the good faith compliance period 
provided under the proposed regulations. These final regulations do not 
adopt this request because the Treasury Department and IRS have 
determined that the relief provided in the proposed regulations is 
sufficient.
    Accordingly, consistent with the proposed regulations, these final 
regulations provide that an issuer using the actual count method for 
determining the average number of lives covered under a policy with a 
policy year that ends on or after October 1, 2012, could begin counting 
lives covered under a policy as of May 14, 2012 (30 days after the date 
that the proposed regulations were published in the Federal Register), 
rather than the first day of the policy year, and divide by the 
appropriate number of days remaining in the policy year. Similarly, for 
policy years that end on or after October 1, 2012, but that began 
before May 14, 2012, these regulations provide that issuers using the 
snapshot method could use counts from quarters beginning on or after 
May 14, 2012, to determine the average number of lives covered under 
the policy. These final regulations also permit a plan sponsor to use 
any reasonable method to determine the average number of lives covered 
under an applicable self-insured health plan for a plan year beginning 
before July 11, 2012 (90 days after the date that the proposed 
regulations were published in the Federal Register), and ending on or 
after October 1, 2012.

XIV. Third-Party or Affiliated Insurer Reporting and Payment

    The proposed regulations did not permit third-party reporting or 
payment of the PCORI fee. One commentator requested that the final 
regulations permit third-party reporting and payment. Another 
commentator requested that the final regulations permit affiliated 
insurers to designate an insurer that will be responsible for payment 
of the section 4375 fee as long as the responsible insurer consents to 
such designation. Because the PCORI fee ceases to apply to policy years 
and plan years that end on or after October 1, 2019, the Treasury 
Department and IRS have determined that the burden and complexity that 
would have to be addressed by issuers, plan sponsors and the IRS to 
develop and operate a third-party reporting and payment regime 
significantly outweigh the benefits of such a regime. Therefore, the 
final regulations do not permit or include rules for third-party 
reporting or payment of the PCORI fee.

Applicability Date

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

Special Analyses

    It has been determined that these final regulations are not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It is hereby certified that these final 
regulations will not have a significant economic impact on a 
substantial number of small entities. This certification is based on 
the fact that small businesses generally do not have self-insured 
health plans and that these regulations will therefore primarily affect 
large corporations. Therefore, a Regulatory Flexibility Analysis under 
the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. 
The Treasury Department and the IRS specifically solicit comments from 
any party, particularly affected small entities, on the accuracy of 
this certification. Pursuant to section 7805(f) of the Code, the 
proposed regulations were submitted to the Chief Counsel for Advocacy 
of the Small Business Administration for comments on its impact on 
small business and no comments were received.

Drafting Information

    The principal authors of these regulations are R. Lisa Mojiri-Azad, 
Office of Division Counsel/Associate Chief Counsel (Tax Exempt and 
Government Entities), and Rebecca L. Baxter, Office of Associate Chief 
Counsel (Financial Institutions & Products). However, other personnel 
from the Treasury Department and the IRS participated in their 
development.

[[Page 72728]]

List of Subjects

26 CFR Part 40

    Excise taxes, Reporting and recordkeeping requirements.

26 CFR Part 46

    Excise taxes, Insurance, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 40, 46, and 602 are amended as follows:

PART 40--EXCISE TAX PROCEDURAL REGULATIONS

0
Paragraph 1. The authority citation for part 40 continues to read in 
part as follows:

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


0
Par. 2. Section 40.0-1 is amended by:
0
1. Removing from the third sentence in paragraph (a) the language 
``chapter 34 to taxes imposed on policies issued by foreign insurers'' 
and adding ``chapter 34 to taxes imposed on certain insurance 
policies'' in its place.
0
2. Adding a new sentence after the third sentence in paragraph (a).
    The addition reads as follows:


Sec.  40.0-1  Introduction.

    (a) * * * References in this part to ``taxes'' also include 
references to the fees imposed by sections 4375 and 4376. * * *
* * * * *

0
Par. 3. Section 40.6011(a)-1 is amended by:
0
1. In paragraph (a)(2)(i), first sentence, the language ``paragraph (b) 
of this section'' is removed and the language ``paragraphs (b) and (c) 
of this section'' is added in its place.
0
2. Paragraph (c) is added.
    The addition reads as follows:


Sec.  40.6011(a)-1  Returns.

* * * * *
    (c) Fees on health insurance policies and self-insured health 
plans--(1) In general. A return that reports liability imposed by 
section 4375 or 4376 is a return for policies or plans with policy or 
plan years ending in the previous calendar year, and, for issuers that 
determine the average number of lives covered under a policy for 
purposes of section 4375 using the member months method under Sec.  
46.4375-1(c)(2)(v) or the state form method under Sec.  46.4375-
1(c)(2)(vi) of this chapter, the return is for all policies in effect 
during the previous calendar year. The second sentence of paragraph 
(a)(2)(i) of this section (relating to filing quarterly returns 
regardless of whether liability is incurred) does not apply to a person 
that files a Form 720, ``Quarterly Federal Excise Tax Return,'' only to 
report liability imposed by section 4375 or 4376.
    (2) Applicability date. This paragraph (c) applies to returns that 
report liability imposed by section 4375 or 4376.

0
Par. 4. Section 40.6071(a)-1 is amended as follows:
0
1. Paragraph (c) is revised.
0
2. Paragraph (d) is added.
    The revision and addition read as follows:


Sec.  40.6071(a)-1  Time for filing returns.

* * * * *
    (c) Fees on health insurance policies and self-insured health 
plans--(1) Specified health insurance policies. A return that reports 
liability for the fee imposed by section 4375 must be filed by July 31 
of the calendar year immediately following the last day of the policy 
year. For issuers that determine the average number of lives covered 
under the policy for section 4375 using the member months method under 
Sec.  46.4375-1(c)(2)(v) or the state form method under Sec.  46.4375-
1(c)(2)(vi), the return must be filed by July 31 of the immediately 
following calendar year. Thus, for example, a return that reports 
liability for the fee imposed by section 4375 for the year ending on 
December 31, 2012, must be filed by July 31, 2013.
    (2) Applicable self-insured health plans. A return that reports 
liability for the fee imposed by section 4376 for a plan year must be 
filed by July 31 of the calendar year immediately following the last 
day of the plan year. Thus, for example, a return that reports 
liability for the fee imposed by section 4376 for the plan year ending 
on January 31, 2013, must be filed by July 31, 2014.
    (d) Effective/Applicability date. Paragraphs (a) and (b) of this 
section apply to returns for calendar quarters beginning on or after 
October 1, 2001, and paragraph (c) of this section applies to returns 
that report liability imposed by section 4375 or 4376.


Sec.  40.6091-1  Amended

0
Par. 5. Section 40.6091-1, paragraph (a), is amended by removing the 
language ``paragraph (b) of this section, quarterly returns'' and by 
adding the language ``paragraphs (b) and (c) of this section, returns'' 
in its place.
0
Par. 6. Section 40.6302(c)-1 is amended by revising paragraph 
(e)(1)(iv) to read as follows:


Sec.  40.6302(c)-1  Deposits.

* * * * *
    (e) * * *
    (1) * * *
    (iv) Sections 4375 and 4376 (relating to fees on health insurance 
policies and self-insured health plans).
* * * * *

PART 46--EXCISE TAX ON CERTAIN INSURANCE POLICIES, SELF-INSURED 
HEALTH PLANS, AND OBLIGATIONS NOT IN REGISTERED FORM

0
Par. 7. The authority citation for part 46 continues to read in part as 
follows:

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


0
Par. 8. In part 46, the heading is revised to read as set forth above.


Sec.  46.0-1  Amended

0
Par. 9. In Sec.  46.0-1, first sentence, the language ``policies issued 
by foreign insurers'' is removed and the language ``certain insurance 
policies and self-insured health plans'' is added in its place.


Sec.  46.0-2  [Removed]

0
Par. 10. Section 46.0-2 is removed.

0
Par. 11. In Part 46, subpart C is redesignated as subpart D and a new 
subpart C is added to read as follows:
Subpart C--Fees on Insured and Self-insured Health Plans
Sec.
46.4375-1 Fee on issuers of specified health insurance policies.
46.4376-1 Fee on sponsors of self-insured health plans.
46.4377-1 Definitions and special rules.

Subpart C--Fees on Insured and Self-insured Health Plans


Sec.  46.4375-1  Fee on issuers of specified health insurance policies.

    (a) In general. An issuer of a specified health insurance policy is 
liable for a fee imposed by section 4375 for policy years ending on or 
after October 1, 2012, and before October 1, 2019. Paragraph (b) of 
this section provides definitions that apply for purposes of section 
4375 and this section. Paragraph (c) of this section provides rules for 
calculating the fee under section 4375. Paragraph (d) of this section 
provides the applicability date. For rules relating to filing the 
required return and paying the fee, see Sec. Sec.  40.6011(a)-1 and 
40.6071(a)-1 of this chapter.
    (b) Definitions. The following definitions apply for purposes of 
section 4375 and this section. See also Sec.  46.4377-1 for additional 
definitions.
    (1) Specified health insurance policy--(i) In general. Except as

[[Page 72729]]

provided in paragraph (b)(1)(ii) of this section and Sec.  46.4377-1, 
specified health insurance policy means any accident and health 
insurance policy (including a policy under a group health plan) issued 
with respect to individuals residing in the United States (as defined 
in Sec.  46.4377-1(a)(2)), including prepaid health coverage 
arrangements described in paragraph (b)(2) of this section. Specified 
health insurance policy also includes any policy that provides accident 
and health coverage to an active employee, former employee, or 
qualifying beneficiary, as continuation coverage required under the 
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) or 
similar continuation coverage under other Federal law or state law.
    (ii) Exceptions. The term specified health insurance policy does 
not include--
    (A) Any insurance policy if substantially all of its coverage is of 
excepted benefits described in section 9832(c);
    (B) Any group policy issued to an employer where the facts and 
circumstances show that the group policy was designed and issued 
specifically to cover primarily employees who are working and residing 
outside of the United States (as defined in Sec.  46.4377-1(a)(3));
    (C) Any stop loss or indemnity reinsurance policy; or
    (D) Any insurance policy to the extent it provides an employee 
assistance program, disease management program, or wellness program if 
the program does not provide significant benefits in the nature of 
medical care or treatment.
    (iii) Stop loss policy. For purposes of paragraph (b)(1)(ii) of 
this section, stop loss policy means an insurance policy in which--
    (A) The insurer that issues the policy to a person establishing or 
maintaining a self-insured health plan becomes liable for all, or an 
agreed upon portion of, losses that person incurs in covering the 
applicable lives in excess of a specified amount; and
    (B) The person establishing or maintaining the self-insured health 
plan retains its liability to, and its contractual relationship with, 
the applicable lives covered.
    (iv) Indemnity reinsurance policy. For purposes of paragraph 
(b)(1)(ii) of this section, indemnity reinsurance policy means an 
agreement between two or more insurance companies under which--
    (A) The reinsuring company agrees to accept and to indemnify the 
issuing company for all or part of the risk of loss under policies 
specified in the agreement; and
    (B) The issuing company retains its liability to, and its 
contractual relationship with, the applicable lives covered.
    (2) Prepaid health coverage arrangement. The term prepaid health 
coverage arrangement means an arrangement under which fixed payments or 
premiums are received as consideration for a person's agreement to 
provide or arrange for the provision of accident and health coverage to 
individuals residing in the United States, regardless of how such 
coverage is provided or arranged to be provided. For example, any 
hospital or medical service policy or certificate, hospital or medical 
service plan contract, or health maintenance organization contract is a 
specified 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 of the average number 
of lives covered under the policy for the policy year (determined in 
accordance with paragraphs (c)(2) and (c)(3) of this section) and the 
applicable dollar amount (determined in accordance with paragraph 
(c)(4) of this section). For purposes of computing the fee under this 
paragraph (c), in the case of an issuer that determines the average 
number of lives covered for all policies in effect during a calendar 
year using the member months method under paragraph (c)(2)(v) of this 
section or the state form method under paragraph (c)(2)(vi) of this 
section, the applicable dollar amount with respect to such issuer's 
policies for such calendar year is the applicable dollar amount for 
policy years ending on December 31 of such calendar year (determined in 
accordance with paragraph (c)(4) of this section), except that the 
applicable dollar amount with respect to such an issuer's policies for 
calendar year 2019 is the applicable dollar amount for policy years 
ending on September 30, 2019. For more information, see the examples 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 average number of lives covered under a 
policy--(i) In general. To determine the average number of lives 
covered under a specified health insurance policy during a policy year, 
an issuer must use one of the following methods--
    (A) The actual count method (described in paragraph (c)(2)(iii) of 
this section);
    (B) The snapshot method (described in paragraph (c)(2)(iv) of this 
section);
    (C) The member months method (described in paragraph (c)(2)(v) of 
this section); or
    (D) The state form method (described in paragraph (c)(2)(vi) of 
this section).
    (ii) Consistency requirements. An issuer must use the same method 
of calculating the average number of lives covered under a policy 
consistently for the duration of the year. In addition, for all 
policies for which a liability is reported on a Form 720, ``Quarterly 
Federal Excise Tax Return,'' for a particular year, the issuer must use 
the same method of computing lives covered. An issuer that determines 
the average number of lives covered by using the actual count method 
described in paragraph (c)(2)(iii) of this section or the snapshot 
method described in paragraph (c)(2)(iv) of this section may change its 
method of computing the average lives covered to the snapshot method or 
actual count method, respectively, provided that the issuer uses the 
same method for computing the average lives covered for all policies 
for which a liability is reported on the Form 720 for that year. For 
example, an issuer with a policy having a policy year that ends on June 
30, Policy A, may determine the average number of lives covered under 
Policy A for July 1, 2013, to June 30, 2014, using the actual count 
method if the issuer uses the actual count method for all policies for 
which a liability will be reported on the Form 720 due by July 31, 2015 
(the due date for return that will include the liability for the July 
2013 to June 2014 policy year for Policy A). The issuer may change its 
method for determining the average number of lives covered under Policy 
A to the snapshot method for the July 1, 2014, to June 30, 2015, policy 
year, provided that the snapshot method is used for all policies for 
which a liability will be reported on the Form 720 due by July 31, 2016 
(the due date for return that will include the liability for the July 
2014 to June 2015 policy year for Policy A). An issuer that determines 
the average number of lives covered by using the member months method 
under paragraph (c)(2)(v) of this section or the state form method 
under paragraph (c)(2)(vi) of this section must use the same method for 
calculating lives covered for all policy years for which the fee 
applies.
    (iii) Actual count method--(A) Calculation method. An issuer may 
determine the average number of lives covered under a policy for a 
policy year by adding the total number of lives covered for each day of 
the policy year and dividing that total by the number of days in the 
policy year.

[[Page 72730]]

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

    Example. Insurance Company A issues three policies that are in 
effect during 2014, Group Health Insurance Policy A, which has a 
policy year from December 1 to November 30, Group Health Insurance 
Policy B, which has a policy year from March 1 to February 28, and 
Group Health Insurance Policy C, which has a policy year from 
January 1 to December 31. To calculate the average number of lives 
covered for 2014, Insurance Company A must calculate the average 
number of lives covered for each of its three policies for the 
policy year that ends in 2014. Insurance Company A chooses to use 
the actual count method under paragraph (c)(2)(iii)(A) of this 
section to determine average lives covered for policies having a 
policy year that ends in 2014. Insurance Company A calculates the 
sum of lives covered under Policy A for each day of the policy year 
ending November 30, 2014, as 3,285,000. The average number of lives 
covered under Policy A for the policy year ending November 30, 2014, 
is 3,285,000 divided by 365, or 9,000. Insurance Company A 
calculates the sum of lives covered under Policy B for each day of 
the policy year ending February 28, 2014, as 547,500. The average 
number of lives covered under Policy B for the policy year ending on 
February 28, 2014, is 547,500 divided by 365, or 1,500. Insurance 
Company A calculates the sum of lives covered under Policy C for 
each day of the policy year ending December 31, 2014, as 4,380,000. 
The average number of lives covered under Policy C for the policy 
year ending December 31, 2014, is 4,380,000 divided by 365, or 
12,000. To calculate the section 4375 fee under paragraph (c)(1) of 
this section for calendar year 2014, Insurance Company A must first 
determine the applicable dollar amount for each policy under 
paragraph (c)(4) of this section and multiply that amount by the 
average number of lives covered for that policy. Insurance Company A 
then adds the total fees for all three policies to determine the 
total fee under section 4375 that it must pay for calendar year 
2014.

    (iv) Snapshot method--(A) Calculation method. An issuer may 
determine the average number of lives covered under a policy for a 
policy year by adding the totals of lives covered on a date during the 
first, second, or third month of each quarter (or more dates in each 
quarter if an equal number of dates is used for each quarter), and 
dividing that total by the number of dates on which a count is made. 
For purposes of this paragraph (c)(2)(iv)(A), each date used for the 
second, third and fourth quarters must be within three days of the date 
in that quarter that corresponds to the date used for the first 
quarter, and all dates used must be within the same policy year. If an 
issuer uses multiple dates for the first quarter, the issuer must use 
dates in the second, third, and fourth quarters that correspond to each 
of the dates used for the first quarter or are within three days of 
such corresponding dates, and all dates used must be within the same 
policy year. The 30th and 31st day of a month are treated as the last 
day of the month for purposes of determining the corresponding date for 
any month that has fewer than 31 days (for example, if either March 30 
or March 31 is used as a counting date for a calendar year policy, June 
30 is the corresponding date for the second quarter).
    (B) Example. The following example illustrates the principles of 
paragraphs (c)(1) and (c)(2)(iv)(A) of this section:

    Example. (i) Insurance Company B issues three policies with 12-
month policy years that end in 2014, Group Health Insurance Policy 
A, which has a policy year from December 1 to November 30, Group 
Health Insurance Policy B, which has a policy year from March 1 to 
February 28, and Group Health Insurance Policy C, which has a policy 
year from January 1 to December 31. To calculate the average number 
of lives covered for 2014, Insurance Company B must calculate the 
average number of lives covered for each of its three policies for 
the policy year that ends in 2014. Insurance Company B chooses to 
determine the average lives covered using the snapshot method for 
all policies that have a policy year that ends in 2014 and chooses 
to count lives covered on a single date of the first month of each 
quarter of the policy years. Thus, for Policy A, Insurance Company B 
must count lives covered on a single date falling in each of 
December 2013, March 2014, June 2014 and September 2014; for Policy 
B, Insurance Company B must count lives covered on a single date 
falling in each of March 2014, June 2014, September 2014 and 
December 2014; and for Policy C, Insurance Company B must count 
lives covered on a single date falling in each of January 2014, 
April 2014, July 2014 and October 2014. In addition, the date for 
each of the second, third, and fourth quarters must fall within 
three days of the date in such quarter that corresponds to the date 
used for the first quarter, and must fall within the same policy 
year.
    (ii) On December 6, 2013, Policy A covers 8,900 lives, on March 
7, 2014, 9,100 lives, on June 6, 2014, 9,050 lives, and on September 
5, 2014, 9,050 lives. Insurance Company B treats the average number 
of lives covered under Policy A for the policy year ending November 
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, on September 6, 2013, 1,400 lives, and on 
December 6, 2013, 1,550 lives. Insurance Company B treats the 
average number of lives covered under Policy B for the policy year 
ending 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 covers 12,500 lives, on April 
4, 2014, 12,250 lives, on July 7, 2014, 12,000 lives, and on October 
3, 2014, 11,250 lives. Insurance Company B treats the average number 
of lives covered under Policy C for the policy year ending December 
31, 2014, as 47,750 (12,500 + 12,250 + 12,000 + 11,250) divided by 
4, or 12,000.
    (v) To calculate the section 4375 fee under paragraph (c)(1) of 
this section for calendar year 2014, Insurance Company B must first 
determine the applicable dollar amount for each policy under 
paragraph (c)(4) of this section and multiply that amount by the 
number of average lives covered for that policy. Insurance Company B 
then adds the total fees for all three policies to determine the 
total fee under section 4375 that it must pay for calendar year 
2014.

    (v) Member months method--(A) Calculation method. An issuer may 
determine the average number of lives covered under all policies in 
effect for a calendar year based on the member months (an amount that 
equals the sum of the totals of lives covered on pre-specified days in 
each month of the reporting period) reported on the National 
Association of Insurance Commissioners (NAIC) Supplemental Health Care 
Exhibit filed for that calendar year. Under this method, the average 
number of lives covered under the policies in effect for the calendar 
year equals the member months divided by 12.
    (B) Example. The following example illustrates the principles of 
paragraphs (c)(1) and (c)(2)(v)(A) of this section:

    Example. Insurance Company C chooses to determine the average 
number of lives covered for all years to which the section 4375 fee 
applies using the member months method of paragraph (c)(2)(v)(A) of 
this section. Insurance Company C reports 12,000,000 as its member 
months on the NAIC Supplemental Health Care Exhibit filed for 
calendar year 2013. Under the member months method, Insurance 
Company C calculates the average number of lives covered for all its 
specified health insurance policies in force during calendar year 
2013 by dividing 12,000,000 (member months) by 12 (number of months 
in the reporting period), which equals 1,000,000. To determine the 
section 4375 fee it must pay for calendar year 2013, Insurance 
Company C multiplies 1,000,000 by the applicable dollar amount that 
is in effect at the end of the calendar year under paragraph (c)(4) 
of this section.

    (vi) State form method--(A) Calculation method. An issuer that is 
not required to file NAIC annual financial statements may determine the 
number of lives covered under all policies in effect for the calendar 
year using a form that is filed with the issuer's state of domicile and 
a method similar to that described in paragraph (c)(2)(v) of this 
section, if the form reports the number of lives covered in the same 
manner as member months are reported on the NAIC Supplemental Health 
Care Exhibit.

[[Page 72731]]

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

    Example. Insurance Company D is not required to file the NAIC 
Supplemental Health Care Exhibit, but files a form with its state of 
domicile. Insurance Company D chooses to determine the average 
number of lives covered for all years to which the section 4375 fee 
applies using the state form method of paragraph (c)(2)(vi)(A) of 
this section. The state form reports the number of lives covered in 
the same manner as member months is reported on the NAIC 
Supplemental Health Care Exhibit. For calendar year 2013, Insurance 
Company D reports 12,000,000 as its equivalent member months on the 
state form. Under the state form method, Insurance Company D 
calculates the average number of lives covered for all of its 
specified health insurance policies in force during calendar year 
2013 by dividing 12,000,000 (equivalent member months) by 12 (number 
of months in the reporting period), which equals 1,000,000. To 
determine the section 4375 fee it must pay for calendar year 2013, 
Insurance Company D multiplies 1,000,000 by the applicable dollar 
amount that is in effect at the end of the calendar year under 
paragraph (c)(4) of this section.

    (3) Special rules for the first year and the last year the fee is 
in effect--(i) Calculation of the average number of lives covered under 
the policy for the first year the fee is in effect. For issuers that 
determine the average number of lives covered using data reported on 
the 2012 NAIC Supplemental Health Care Exhibit or a permitted state 
form that covers the 2012 calendar year, the average number of lives 
covered under all policies in effect for the 2012 calendar year equals 
the average number of lives covered for that year (as determined under 
paragraph (c)(2)(v) or (vi) of this section) multiplied by \1/4\. The 
resulting number is deemed to be the average number of lives covered 
for policies with policy years ending on or after October 1, 2012, and 
before January 1, 2013. For policy years beginning before May 14, 2012, 
and ending on or after October 1, 2012, issuers that determine the 
average number of lives covered using the actual count method under 
paragraph (c)(2)(iii) of this section may calculate the average number 
of lives covered using data from the period beginning May 14, 2012, 
through the end of the policy year. For policy years beginning before 
May 14, 2012, and ending on or after October 1, 2012, issuers that 
determine the average number of lives covered using the snapshot method 
under paragraph (c)(2)(iv) of this section may calculate the average 
number of lives covered using dates from the quarters remaining in the 
policy year starting on or after May 14, 2012. If an abbreviated year 
is used, the issuer will divide the number of lives covered by the 
number of days from May 14, 2012, through the end of the policy year 
(for the actual count method) or the number of days on which a count 
was made (for the snapshot method).
    (ii) Calculation of the average number of lives covered under the 
policy for the last year the fee is in effect. For issuers that 
determine the average number of lives covered using data reported on 
the 2019 NAIC Supplemental Health Care Exhibit or a permitted state 
form that covers the 2019 calendar year, the average number of lives 
covered for all policies in effect during the 2019 calendar year equals 
the average number of lives covered for that year (as determined under 
paragraph (c)(2)(v) or (vi) of this section) multiplied by \3/4\. The 
resulting number is deemed to be the average number of lives covered 
for policies with policy years ending on or after January 1, 2019, and 
before October 1, 2019.
    (iii) Examples. The following examples illustrate the principles of 
paragraph (c)(3) of this section:

    Example 1. Insurance Company E issues Group Health Insurance 
Policy C, which has a policy year that ends on November 30, 2012. 
Insurance Company E determines the average number of lives covered 
under a policy by using the actual count method. Under that method, 
for that policy year, Insurance Company E calculates the sum of 
lives 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 year is 10,000 divided by the number 
of days from May 14, 2012, through November 30, 2012. Alternatively, 
Insurance Company E could have counted the number of lives covered 
for the entire policy year and divided the sum by 365.
    Example 2. Insurance Company F reports 12,000,000 as its member 
months on its NAIC Supplemental Health Care Exhibit filed for 
calendar year 2012. Under the member months method, Insurance 
Company F calculates the average number of lives covered for 2012 by 
dividing 12,000,000 (member months) by 12 (number of months in the 
reporting period), and then multiplying the result (1,000,000) by 
\1/4\, which equals 250,000. Accordingly, the average number of 
lives covered for policies with policy years ending on or after 
October 1, 2012, and before January 1, 2013, is 250,000.

    (4) Applicable dollar amount. For policy years ending on or after 
October 1, 2012, and before October 1, 2013, the applicable dollar 
amount is $1. For policy years ending on or after October 1, 2013, and 
before October 1, 2014, the applicable dollar amount is $2. For any 
policy year ending in any Federal fiscal year beginning on or after 
October 1, 2014, the applicable dollar amount is the sum of--
    (i) The applicable dollar amount for the policy year ending in the 
previous Federal fiscal year; plus
    (ii) The amount equal to the product of--
    (A) The applicable dollar amount for the policy year ending in the 
previous Federal fiscal year; and
    (B) The percentage increase in the projected per capita amount of 
the National Health Expenditures most recently released by the 
Department of Health and Human Services before the beginning of the 
Federal fiscal year.
    (d) Effective/Applicability date. This section applies for policies 
with policy years ending on or after October 1, 2012, and before 
October 1, 2019.


Sec.  46.4376-1  Fee on sponsors of self-insured health plans.

    (a) In general--(1) General rule. A plan sponsor of an applicable 
self-insured health plan is liable for a fee imposed by section 4376 
for plans with plan years ending on or after October 1, 2012, and 
before October 1, 2019. Paragraph (b) of this section provides the 
definitions that apply for purposes of section 4376 and this section. 
Paragraph (c) of this section provides the requirements for calculating 
the fee imposed by section 4376. Paragraph (d) of this section provides 
the applicability date. For rules relating to filing the required 
return and paying the fee, see Sec. Sec.  40.6011(a)-1 and 40.6071(a)-
1.
    (2) [Reserved]
    (b) Definitions. The following definitions apply for purposes of 
section 4376 and this section. See Sec.  46.4377-1 for additional 
definitions.
    (1) Applicable self-insured health plan--(i) In general. Except as 
provided in paragraph (b)(1)(ii) of this section and Sec.  46.4377-1, 
applicable self-insured health plan means a plan that provides for 
accident and health coverage (within the meaning of Sec.  46.4377-1(a)) 
if any portion of the coverage is provided other than through an 
insurance policy and the plan is established or maintained--
    (A) By one or more employers for the benefit of their employees or 
former employees;
    (B) By one or more employee organizations for the benefit of their 
members or former members;
    (C) Jointly by one or more employers and one or more employee 
organizations for the benefit of employees or former employees;
    (D) By a voluntary employees' beneficiary association, as described 
in section 501(c)(9);
    (E) By an organization described in section 501(c)(6); or

[[Page 72732]]

    (F) By a multiple employer welfare arrangement (as defined in 
section 3(40) of the Employee Retirement Income Security Act of 1974 
(ERISA)), a rural electric cooperative (as defined in section 
3(40)(B)(iv) of ERISA), or a rural cooperative association (as defined 
in section 3(40)(B)(v) of ERISA).
    (ii) Exceptions. The term applicable self-insured health plan does 
not include any of the following:
    (A) A plan that provides benefits substantially all of which are 
excepted benefits, as defined in section 9832(c). For example, a health 
flexible spending arrangement (health FSA) (as described in section 
106(c)(2)) that satisfies the requirements to be treated as an excepted 
benefit under section 9832(c) and Sec.  54.9831-1(c)(3)(v) of this 
chapter is not an applicable self-insured health plan. A health FSA 
that is not treated as an excepted benefit under section 9832(c) and 
Sec.  54.9831-1(c)(3)(v) is an applicable self-insured health plan.
    (B) An employee assistance program, disease management program, or 
wellness program if the program does not provide significant benefits 
in the nature of medical care or treatment.
    (C) A plan that, as demonstrated by the facts and circumstances 
surrounding the adoption and operation of the plan, was designed 
specifically to cover primarily employees who are working and residing 
outside the United States (as defined in Sec.  46.4377-1(a)(3)).
    (iii) Multiple self-insured arrangements established or maintained 
by the same plan sponsor. For purposes of section 4376, two or more 
arrangements established or maintained by the same plan sponsor that 
provide for accident and health coverage (within the meaning of Sec.  
46.4377-1(a)) other than through an insurance policy and that have the 
same plan year may be treated as a single applicable self-insured 
health plan for purposes of calculating the fee imposed by section 
4376. For example, if a plan sponsor establishes or maintains a self-
insured arrangement providing major medical benefits, and a separate 
self-insured arrangement with the same plan year providing prescription 
drug benefits, the two arrangements may be treated as one applicable 
self-insured health plan so that the same life covered under each 
arrangement would count as only one covered life under the plan for 
purposes of calculating the fee. Similarly, if a plan sponsor provides 
a Health Reimbursement Arrangement (HRA) and another applicable self-
insured health plan that provides major medical coverage, the HRA and 
the major medical plan may be treated as one applicable self-insured 
health plan if the HRA and the self-insured plan have the same plan 
year.
    (iv) Examples. The following examples illustrate the principle of 
this paragraph (b)(1):

    Example 1. (i) Plan Sponsor D sponsors and maintains three 
separate plans to provide certain benefits to its employees--Plan 
501, Plan 502, and Plan 503.
    (ii) Plan 501 is a calendar year plan that provides accident and 
health benefits, other than through insurance (that is, on a self-
insured basis), to employees of Plan Sponsor D. Plan 502 is a 
calendar year HRA that can be used to pay for qualified accident and 
medical expenses for employees of Plan Sponsor D and their eligible 
dependents. Plan 503 provides dental and vision benefits for 
employees of Plan Sponsor D and eligible dependents, other than 
through insurance (that is, on a self-insured basis).
    (iii) Because Plan 501 and Plan 502 provide accident and health 
coverage (within the meaning of Sec.  46.4377-1(a)) and are 
maintained by Plan Sponsor D for the benefit of its employees, Plans 
501 and 502 are applicable self-insured health plans that are 
subject to the fee imposed by section 4376. Because dental and 
vision benefits are excepted benefits, as defined in section 
9832(c), Plan 503 is not an applicable self-insured health plan 
subject to the section 4376 fee. Under the special rule set forth in 
Sec.  46.4376-2(b)(1)(iii), Plan Sponsor D may treat Plans 501 and 
502 (both self-insured plans with a calendar year plan year) as a 
single plan for purposes of calculating the fee imposed by section 
4376.
    Example 2. Same facts as Example 1, except Plan 503 is not a 
Plan that provides dental and vision benefits, but rather a plan 
that provides accident and health coverage solely to employees who 
are working and residing outside the United States and does not 
provide any benefits to employees who are not working and residing 
outside the United States. Plan 503 is designed specifically to 
provide coverage to employees working and residing outside the 
United States because it limits coverage to these employees. 
Therefore, in accordance with the exception described in Sec.  
46.4376-1(b)(1)(ii)(C), Plan 503 is not an applicable self-insured 
health plan.

    (2) Plan sponsor--(i) In general. The term plan sponsor means--
    (A) The employer, in the case of an applicable self-insured health 
plan established or maintained by a single employer;
    (B) The employee organization, in the case of an applicable self-
insured health plan established or maintained by an employee 
organization;
    (C) The joint board of trustees, in the case of a multiemployer 
plan (as defined in section 414(f));
    (D) The committee, in the case of a multiple employer welfare 
arrangement (as defined in section 3(40) of ERISA);
    (E) The cooperative or association that establishes or maintains an 
applicable self-insured health plan established or maintained by a 
rural electric cooperative (as defined in section 3(40)(B)(iv) of 
ERISA) or rural cooperative association (as defined in section 
3(40)(B)(v) of ERISA);
    (F) The trustee, in the case of an applicable self-insured health 
plan established or maintained by a voluntary employees' beneficiary 
association (meaning that the voluntary employees' beneficiary 
association is not merely serving as a funding vehicle for a plan that 
is established or maintained by an employer or other person); or
    (G) In the case of an applicable self-insured health plan the plan 
sponsor of which is not described in paragraphs (b)(2)(i)(A) through 
(F) of this section, the person identified by the terms of the document 
under which the plan is operated as the plan sponsor, or the person 
designated by the terms of the document under which the plan is 
operated as the plan sponsor for section 4376 purposes, provided that 
designation is made in writing, and that person has consented to the 
designation in writing, by no later than the date by which the return 
paying the fee under section 4376 for that plan year is required to be 
filed, after which date that designation for that plan year may not be 
changed or revoked, and provided further that a person may be 
designated as the plan sponsor only if the person is one of the persons 
establishing or maintaining the plan (for example, one of the employers 
that establishes or maintains the plan with one or more other employers 
or employee organizations).
    (H) In the case of an applicable self-insured health plan the 
sponsor of which is not described in paragraphs (b)(2)(i)(A) through 
(F) of this section, and for which no identification or designation of 
a plan sponsor has been made pursuant to paragraph (b)(2)(i)(G) of this 
section, each employer that establishes or maintains the plan (with 
respect to employees of that employer), each employee organization that 
establishes or maintains the plan (with respect to members of that 
employee organization), and each board of trustees, cooperative, or 
association that establishes or maintains the plan, meaning that each 
plan sponsor must file a separate Form 720, ``Quarterly Federal Excise 
Tax Return,'' reflecting its separate liability under section 4376.
    (ii) Examples. The following examples illustrate the principles of 
paragraph (b)(2) of this section:

    Example 1. (i) Corporation XYZ is a holding company with no 
employees that owns all the issued and outstanding shares of 
Employer X, Employer Y, and Employer Z.

[[Page 72733]]

Employer X, Employer Y, and Employer Z have established the XYZ 
Group Health Plan to provide accident and health coverage, provided 
other than through an insurance policy, for the benefit of their 
employees. The XYZ Group Health Plan has a calendar year plan year. 
In addition, there is no plan sponsor identified or designated in 
the plan document.
    (ii) Because the XYZ Group Health Plan provides accident and 
health coverage other than through an insurance policy, and is 
established by one or more employers for the benefit of their 
employees, the XYZ Group Health Plan is an applicable self-insured 
health plan under section 4376(c)(2)(A) and paragraph (b)(1)(i)(A) 
of this section. Because a plan sponsor is not identified or 
designated in the governing plan document, the plan sponsor, for 
purposes of section 4376, is determined under paragraph (b)(2)(i)(H) 
of this section as each employer that establishes or maintains the 
plan (Employer X, Employer Y, and Employer Z), each with respect to 
its employees covered under the plan. Accordingly, Employer X, 
Employer Y, and Employer Z each must file a Form 720 reflecting 
their separate liabilities under section 4376, calculated based on 
lives covered that are employees of that employer (or spouses, 
dependents, or other beneficiaries of employees of that employer) 
and the applicable dollar amount in effect for the plan year.
    Example 2. The same facts as Example 1, except that the 
governing plan document designates Employer X as the plan sponsor of 
the XYZ Group Health Plan for purposes of the fee under section 4376 
and Employer X consents to this designation no later than the due 
date for paying the fee under section 4376. Accordingly, the plan 
sponsor for purposes of section 4376 is determined under paragraph 
(b)(2)(i)(G) of this section as Employer X. Employer X must file a 
Form 720 reflecting liabilities under section 4376, calculated based 
upon lives covered that are employees of Employer X, Employer Y, or 
Employer Z, or spouses, dependents, or other beneficiaries of 
employees of those employers and the applicable dollar amount in 
effect for the plan year.

    (c) Calculation of fee--(1) In general. The amount of the fee for a 
plan year is equal to the product of the average number of lives 
covered under the plan for the plan year (determined in accordance with 
paragraph (c)(2) of this section) and the applicable dollar amount 
(determined in accordance with paragraph (c)(3) of this section).
    (2) Determination of the average number of lives covered under the 
plan--(i) In general. To determine the average number of lives covered 
under an applicable self-insured health plan during a plan year, a plan 
sponsor must use one of the following methods--
    (A) The actual count method (described in paragraph (c)(2)(iii) of 
this section);
    (B) The snapshot method (described in paragraph (c)(2)(iv) of this 
section); or
    (C) The Form 5500 method (described in paragraph (c)(2)(v) of this 
section).
    (ii) Consistency within plan year. A plan sponsor must use the same 
method of calculating the average number of lives covered under the 
plan consistently for the duration of the plan year. However, a plan 
sponsor may use a different method from one plan year to the next.
    (iii) Actual count method--(A) In general. A plan sponsor may 
determine the average number of lives covered under a plan for a plan 
year by adding the totals of lives covered for each day of the plan 
year and dividing that total by the number of days in the plan year.
    (B) Example. The following example illustrates the principles of 
paragraphs (c)(1) and (c)(2)(iii)(A) of this section:

    Example. Employer A is the plan sponsor of the Employer A Self-
Insured Health Plan, which has a calendar year plan year. Employer A 
calculates the sum of lives covered under the plan for each day of 
the plan year ending December 31, 2013 as 3,285,000. The average 
number of lives covered under the plan for the plan year ending 
December 31, 2013, is 3,285,000 divided by 365, or 9,000. To 
calculate the section 4376 fee for the plan under paragraph (c)(1) 
of this section for the plan year ending December 31, 2013, Employer 
A must determine the applicable dollar amount under paragraph (c)(3) 
of this section and multiply that amount by 9,000.

    (iv) Snapshot method--(A) In general. A plan sponsor may determine 
the average number of lives covered under an applicable self-insured 
health plan for a plan year by adding the totals of lives covered on a 
date during the first, second, or third month of each quarter of the 
plan year (or more dates in each quarter if an equal number of dates is 
used in each quarter), and dividing that total by the number of dates 
on which a count was made. For purposes of this paragraph (c)(2)(iv), 
each date used for the second, third and fourth quarter must be within 
three days of the date in that quarter that corresponds to the date 
used for the first quarter, and all dates used must fall within the 
same plan year. If a plan sponsor uses multiple dates for the first 
quarter, the plan sponsor must use dates in the second, third, and 
fourth quarters that correspond to each of the dates used for the first 
quarter or are within three days of such corresponding dates, and all 
dates used must fall within the same plan year. The 30th and 31st day 
of a month are treated as the last day of the month for purposes of 
determining the corresponding date for any month that has fewer than 31 
days (for example, if either March 30 or March 31 is used for a 
calendar year plan, June 30 is the corresponding date for the second 
quarter). For purposes of this paragraph (c)(2)(iv), the number of 
lives covered on a designated date may be determined using either the 
snapshot factor method described in paragraph (c)(2)(iv)(B) of this 
section or the snapshot count method described in paragraph 
(c)(2)(iv)(C) of this section.
    (B) Snapshot factor method. Under the snapshot factor method, the 
number of lives covered on a date is equal to the sum of--
    (i) The number of participants with self-only coverage on that 
date; plus
    (ii) The number of participants with coverage other than self-only 
coverage on the date multiplied by 2.35.
    (C) Snapshot count method. Under the snapshot count method, the 
number of lives covered on a date equals the actual number of lives 
covered on the designated date.
    (D) Examples. The following examples illustrate the principles of 
paragraphs (c)(1) and (c)(2)(iv) of this section:

    Example 1. (i) Employer B is the plan sponsor of the Employer B 
Self-Insured Health Plan, which has a calendar year plan year. 
Employer B uses the snapshot method to determine the average number 
of lives covered under the plan and uses the snapshot count method 
to determine the number of lives covered on a day in the first month 
of each calendar quarter of the plan year.
    (ii) On January 4, 2013, the Employer B Self-Insured Health Plan 
covers 2,000 lives, on April 5, 2013, 2,100 lives, on July 5, 2013, 
2,050 lives, and on October 4, 2013, 2,050 lives. Under the snapshot 
method, Employer B must determine the average number of lives 
covered under the Employer B Self-Insured Health Plan for the plan 
year ending December 31, 2013, as 8,200 (2,000 + 2,100 + 2,050 + 
2,050) divided by 4, or 2,050. To calculate the section 4376 fee 
under paragraph (c)(1) of this section for the plan year ending 
December 31, 2013, Employer B must determine the applicable dollar 
amount under paragraph (c)(3) of this section and multiply that 
amount by 2,050.
    Example 2. (i) Same facts as Example 1, except that for the 2014 
plan year Employer B determines the number of lives covered that are 
not covered by self-only coverage using the snapshot factor method 
(that is, based on the number of participants with coverage other 
than self-only coverage multiplied by 2.35 (the factor set forth in 
(c)(2)(iv) of this section)).
    (ii) On January 10, 2014, Employer B Self-Insured Health Plan 
provides self-only coverage to 600 employees and other than self-
only coverage to 800 employees. On April 11, 2014, Employer B Self-
Insured Health Plan provides self-only coverage to 608 employees and 
other than self-only coverage to 800 employees. On July 11, 2014 and 
October 10, 2014, Employer B Self-Insured Health Plan provides self-
only coverage to 610 employees and other than self-only coverage to 
809 employees.

[[Page 72734]]

    (iii) Under the snapshot factor method, Employer B must 
determine the average number of lives covered under the Employer B 
Self-Insured Health Plan for the plan year ending December 31, 2014 
as 9,988 [(600 + (800 x 2.35)) + (608 + (800 x 2.35)) + (610 + (809 
x 2.35)) + (610 + (809 x 2.35))] divided by 4, or 2,497. To 
calculate the section 4376 fee under paragraph (c)(1) of this 
section for the plan year ending December 31, 2014, Employer B must 
determine the applicable dollar amount under paragraph (c)(3) of 
this section and multiply that amount by 2,497.

    (v) Form 5500 method--(A) Calculation method. A plan sponsor may 
determine the average number of lives covered under a plan for a plan 
year based on the number of participants reported on the Form 5500, 
``Annual Return/Report of Employee Benefit Plan,'' or the Form 5500-SF, 
``Short Form Annual Return/Report of Small Employee Benefit Plan,'' 
that is filed for the applicable self-insured health plan for that plan 
year, provided that the Form 5500 or Form 5500-SF is filed no later 
than the due date for the fee imposed by section 4376 for that plan 
year. For purposes of this paragraph (c)(2)(v), the average number of 
lives covered under the plan for the plan year for a plan offering only 
self-only coverage equals the sum of the total participants covered at 
the beginning and the end of the plan year, as reported on the Form 
5500 or Form 5500-SF for the applicable self-insured health plan, 
divided by 2. For purposes of this paragraph (c)(2)(v), the average 
number of lives covered under the plan for the plan year for a plan 
offering self-only coverage and coverage other than self-only coverage 
equals the sum of total participants covered at the beginning and the 
end of the plan year, as reported on the Form 5500 or Form 5500-SF 
filed for the applicable self-insured health plan.
    (B) Examples. The following examples illustrate the principles of 
paragraphs (c)(1) and (c)(2)(v)(A) of this section:

    Example 1. Employer C is the plan sponsor of the Employer C 
Self-Insured Health Plan, which has a calendar year plan year ending 
on December 31, 2013. Employer C is required to file a Form 5500 for 
the plan for the 2013 plan year by July 31, 2014. However, on July 
30, 2014, Employer C obtains an automatic 2\1/2\ month extension for 
filing the 2013 Form 5500. Employer C files the 2013 Form 5500 on 
September 30, 2014 (that is, before the October 15 extended due 
date). Employer C is not eligible to use the Form 5500 method to 
determine the average number of lives covered under Plan C for the 
plan year ending on December 31, 2013, because the 2013 Form 5500 
was not filed by the original due date (that is, by July 31, 2014) 
for the return that reports liability for the fee imposed by section 
4376 for the 2013 plan year.
    Example 2. Same facts as Example 1, except that the Employer C 
Self-Insured Health Plan has a fiscal year plan year ending on July 
31, 2013, and offers only self-only coverage. Employer C files a 
Form 5500 for the Employer C Self-Insured Health Plan for the plan 
year ending July 31, 2013 (the 2012 Form 5500), on the extended due 
date for filing the 2012 Form 5500 (May 15, 2014). Employer C is 
eligible to use the Form 5500 method to determine the average number 
of lives covered under Plan C for the plan year ending on July 31, 
2013, because the 2012 Form 5500 had been filed by the due date for 
the return that reports liability for the fee imposed by section 
4376 for that plan year (July 31, 2014).
    Example 3. Same facts as Example 2, provided further that the 
Employer C Self-Insured Health Plan 2012 Form 5500 reports 4,000 
plan participants on the first day of the plan year and 4,200 plan 
participants on the last day of the 2012 plan year. For purposes of 
calculating the fee under section 4376 using the Form 5500 method, 
Employer C must treat the number of lives covered for the plan year 
ending July 31, 2013, as equal to the sum of 4,000 and 4,200 or 
8,200, divided by 2, or 4,100. To calculate the section 4376 fee 
under paragraph (c)(1) of this section for the plan year ending July 
31, 2013, Employer C must determine the applicable dollar amount 
under paragraph (c)(3) of this section and multiply that amount by 
4,100.
    Example 4. Same facts as Example 3, except that the Employer C 
Self-Insured Health plan offers self-only coverage and family 
coverage. For purposes of calculating the fee under section 4376 
using the Form 5500 method, Employer C must treat the number of 
lives covered for the plan year ending July 31, 2013, as equal to 
the sum of 4,000 and 4,200, or 8,200. To calculate the section 4376 
fee under paragraph (c)(1) of this section for the plan year ending 
July 31, 2013, Employer C must determine the applicable dollar 
amount under paragraph (c)(3) of this section and multiply that 
amount by 8,200.

    (vi) Special rule for health FSAs and HRAs. For purposes of this 
section, if a plan sponsor does not establish or maintain an applicable 
self-insured health plan other than a health flexible spending 
arrangement (health FSA) (as described in section 106(c)(2)) or a 
health reimbursement arrangement (as described in Notice 2002-45 (2002-
2 CB 93)) (HRA), the plan sponsor may treat each participant's health 
FSA or HRA as covering a single life (and therefore the plan sponsor is 
not required to include as lives covered any spouse, dependent, or 
other beneficiary of the individual participant in the health FSA or 
HRA, as applicable). If a health FSA or HRA that is an applicable self-
insured health plan has the same plan sponsor and plan year as another 
applicable self-insured health plan other than a health FSA or HRA, the 
two arrangements may be treated as a single plan under paragraph 
(b)(1)(iii) of this section. However, the special counting rule in this 
paragraph applies only for purposes of the health FSA or HRA and, 
therefore, applies only for purposes of the participants in the health 
FSA or HRA that do not participate in the other applicable self-insured 
health plan. The participants in the health FSA or HRA that participate 
in the other applicable self-insured health plan will be counted in 
accordance with the method applied for counting lives covered under 
that other plan as described in paragraph (b)(2)(i) of this section. 
See Sec.  601.601(d)(2) of this chapter.
    (vii) Special rule for lives covered solely by the fully-insured 
options under an applicable self-insured health plan--(A) In general. 
If an applicable self-insured health plan provides accident and health 
coverage through fully-insured options and self-insured options, the 
plan sponsor is permitted to disregard the lives that are covered 
solely under the fully-insured options in determining the lives covered 
taken into account for the actual count method (described in paragraph 
(c)(2)(iii) of this section), the snapshot method (described in 
paragraph (c)(2)(iv) of this section), and the Form 5500 method 
(described in paragraph (c)(2)(v) of this section).
    (B) Example. The following example illustrates the principles of 
paragraph (c)(2)(vii) of this section:

    Example. (i) Employer C is the plan sponsor of the Employer C 
Health Plan (Plan P). The Plan offers self-only or family health and 
accident coverage under fully-insured or self-insured options. On 
June 28, 2015, Employer C files a Form 5500 for Plan P for the plan 
year ending December 31, 2014 indicating: (1) a total of 4,000 plan 
participants on the first day of the 2014 plan year; and (2) a total 
of 4,200 plan participants on the last day of the plan year. 
Employer C determines that there were 3,000 plan participants (and 
their families, as applicable) covered under the fully-insured 
option offered under the plan on the first day of the 2014 plan 
year, and 2,900 plan participants (and their families, as 
applicable) covered under the fully-insured option on the last day 
of the 2014 plan year. Employer C uses the Form 5500 method to 
calculate the number of lives covered for the 2014 plan year.
    (ii) Pursuant to paragraph (c)(2)(vii) of this section, Employer 
C determines the number of lives covered for the 2014 plan year as: 
the sum of 1,000 (4,000 total participants on the first day of the 
plan year--3,000 participants covered by the specified health 
insurance policy on the first day of the plan year) and 1,300 (4,200 
total participants--2,900 participants covered by the specified 
health insurance policy on the first day of the plan year), or 
2,300. To calculate the section 4376 fee under paragraph (c)(1) of 
this section for

[[Page 72735]]

the 2014 plan year, Employer C must determine the applicable dollar 
amount under paragraph (c)(3) of this section and multiply that 
amount by 2,300.

    (viii) Special rule for the first year the fee is in effect. 
Notwithstanding paragraph (c)(2)(i) of this section, for a plan year 
beginning before July 11, 2012, and ending on or after October 1, 2012, 
a plan sponsor may determine the average number of lives covered under 
the plan for the plan year using any reasonable method.
    (3) Applicable dollar amount. For a plan year ending on or after 
October 1, 2012, and before October 1, 2013, the applicable dollar 
amount is $1. For a plan year ending on or after October 1, 2013, and 
before October 1, 2014, the applicable dollar amount is $2. For any 
plan year ending in any Federal fiscal year beginning on or after 
October 1, 2014, the applicable dollar amount is equal to the sum of--
    (i) The applicable dollar amount for the plan year ending in the 
previous Federal fiscal year; plus
    (ii) The amount equal to the product of--
    (A) The applicable dollar amount for the plan year ending in the 
previous Federal fiscal year; and
    (B) The percentage increase in the projected per capita amount of 
the National Health Expenditures most recently released by the 
Department of Health and Human Services before the beginning of the 
Federal fiscal year.
    (4) Examples. The following examples illustrate the principle of 
paragraph (c)(3) of this section.

    Example 1. (Calendar year plan). (i) Plan Sponsor C maintains 
Plan X which has a calendar year plan year; the plan continues in 
operation for the entire calendar years 2012 through 2019. Plan X is 
an applicable self-insured health plan, within the meaning of Sec.  
46.4376-1(b)(1), and Plan Sponsor C is liable for the fee imposed by 
section 4376, determined in accordance with these regulations, 
beginning with the 2012 plan year--the plan year beginning January 
1, 2012, and ending December 31, 2012--and ending with the 2018 plan 
year--the plan year beginning January 1, 2018, and ending December 
31, 2018. In accordance with Sec.  40.6071(a)-1(c) of this chapter:
    (ii) The first Form 720 that must be filed to report and pay the 
fee imposed by section 4376 for Plan X covers the 2012 plan year 
(January 1, 2012, through December 31, 2012) and must be filed no 
later than July 31, 2013, and the fee reported on this form must be 
calculated by multiplying the average number lives by $1 (the 
applicable dollar amount in effect for plans with plan years 
beginning on or after October 1, 2012, and before October 1, 2013); 
and
    (ii) The last Form 720 that must be filed to report and pay the 
fee imposed by section 4376 for Plan X covers the 2018 plan year 
(January 1, 2018, through December 31, 2018) and must be filed no 
later than July 31, 2019, and the fee reported on this form must be 
calculated using the applicable dollar amount in effect for plan 
years ending on or after October 1, 2018, and before October 1, 
2019.
    Example 2. (Fiscal year plan). (i) Plan Sponsor B maintains Plan 
W, which has a fiscal year plan year ending on July 31; the plan 
continues in operation for the entire fiscal year plan years from 
August 1, 2012, through July 31, 2019. Plan W is an applicable self-
insured health plan, within the meaning of Sec.  46.4376-1(b)(1), 
and Plan Sponsor B is liable for the fee imposed by section 4376, 
determined in accordance with these regulations, beginning with the 
2012 plan year--the plan year beginning on August 1, 2012, and 
ending on July 31, 2013--and ending with the 2018 plan year--plan 
year beginning on August 1, 2018, and ending July 31, 2019. In 
accordance with Sec.  40.6071(a)-1(c) of this chapter:
    (ii) The first Form 720 that must be filed to report and pay the 
fee imposed by section 4376 for Plan X covers the 2012 plan year 
(August 1, 2012, through July 31, 2013) and must be filed no later 
than July 31, 2014, and the fee reported on this form must be 
calculated by multiplying the average number lives by $1 (the 
applicable dollar amount in effect for plans with plans years 
beginning on or after October 1, 2012, and before October 1, 2013); 
and
    (iii) The last Form 720 that must be filed to report and pay the 
fee imposed by section 4376 for Plan X covers the 2018 plan year 
(August 1, 2018, through July 31, 2019) and must be filed no later 
than July 31, 2020, and the fee must be calculated using the 
applicable dollar amount in effect for plan years ending on or after 
October 1, 2018, and before October 1, 2019.

    (d) Effective/Applicability date. This section applies for plan 
years that end on or after October 1, 2012, and before October 1, 2019.


Sec.  46.4377-1  Definitions and special rules.

    (a) Definitions. The following definitions apply for purposes of 
sections 4375 and 4376 and Sec. Sec.  46.4375-1 and 46.4376-1.
    (1) Accident and health coverage. The term accident and health 
coverage means any coverage that, if provided by an insurance policy, 
would cause such policy to be a specified health insurance policy (as 
defined in section 4375(c) and Sec.  46.4375-1(b)(1)). Accident and 
health coverage also includes coverage for an active employee, a former 
employee, or a qualifying beneficiary that is continuation coverage 
required under the Consolidated Omnibus Budget Reconciliation Act of 
1985 (COBRA) or similar continuation coverage under other federal law 
or under state law.
    (2) Individual residing in the United States--(i) The term 
individual residing in the United States means an individual with a 
place of abode in the United States.
    (ii) Determination of place of abode. For purposes of paragraph 
(a)(2) of this section, an issuer or a plan sponsor may rely on the 
most recent address on file with the issuer or plan sponsor and may 
treat the primary insured and the primary insured's spouse, dependents, 
or other beneficiaries covered by the policy as having the same place 
of abode. For this purpose, the primary insured is the individual 
covered by the policy whose eligibility for coverage was not due to 
that individual's status as the spouse, dependent, or other beneficiary 
of another covered individual.
    (3) United States. The term United States includes American Samoa, 
Guam, the Northern Mariana Islands, Puerto Rico, the Virgin Islands, 
and any other possession of the United States.
    (4) Federal fiscal year. The term Federal fiscal year means the 
year beginning on October 1 and ending on the following September 30.
    (b) Treatment of exempt governmental programs--(1) In general. The 
fees imposed by sections 4375 and 4376 do not apply to any covered life 
under an exempt governmental program as defined in paragraph (b)(2) of 
this section.
    (2) Exempt governmental program. For purposes of this section, 
exempt governmental program means any--
    (i) Insurance program established under title XVIII of the Social 
Security Act;
    (ii) Medical assistance program established by title XIX or XXI of 
the Social Security Act;
    (iii) Program established by Federal law for providing medical care 
(other than through insurance policies) to individuals (or their 
spouses and dependents) by reason of such individuals being (or having 
been) members of the Armed Forces of the United States; and
    (iv) Program established by Federal law for providing medical care 
(other than through insurance policies) to members of Indian tribes (as 
defined in section 4(d) of the Indian Health Care Improvement Act).
    (c) Effective/Applicability date. This section applies to all 
policy and plan years that end on or after October 1, 2012, and before 
October 1, 2019.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 12. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.

[[Page 72736]]


0
Par. 13. In Sec.  602.101, paragraph (b) is amended by adding the 
following entries in numerical order to the table to read as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR Part or section where indentified and described      control No.
------------------------------------------------------------------------
 
                                * * * * *
46.4375-1...............................................       1545-2238
46.4376-1...............................................       1545-2238
 
                              * * * * * * *
------------------------------------------------------------------------


 Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
    Approved: November 28, 2012.
 Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2012-29325 Filed 12-5-12; 8:45 am]
BILLING CODE 4830-01-P