Below I am re-publishing a blog post I wrote last July (with edits and updates) regarding the “Patient Centered Outcomes Trust Fund” fee that is assessed against employers who have health reimbursement arrangements (HRAs).
The only change for this year is that the fee is now $2 per person (it was $1 per person last year).
Originally published July 15, 2013. Edits and updates are in italics
If you have a health reimbursement arrangement plan (HRA, sometimes called a “Section 105 plan”), you probably owe a “Patient-Centered Outcomes Trust Fund Fee.”
Most people reading this blog post are probably saying, “What the heck is that?”.
The Patient-Centered Outcomes Trust Fund Fee is part of the Affordable Care Act. The fee is imposed on businesses or insurance companies at a rate of
$1 $2 per participant in a health plan. A “health plan” of course includes traditional health insurance plans, but it also includes HRAs.
(Side note: on an employer-provided health insurance policy [not an HRA], whether the employer or the insurance company owes the fee depends on the nature of the plan; I am not an expert on health insurance plans so I won’t get into that here.) Updated to add: in most cases, the employer will NOT owe a fee on the insurance policy itself.
Back to HRAs: for purposes of this fee, an HRA is considered a health plan, thus making HRAs subject to the fee.
Here’s what’s annoying for businesses with an HRA: there’s no exemption for small businesses — and almost all HRAs (at least that I deal with) are with small businesses, oftentimes sole proprietors who have hired their spouse.
Updated to add: HRAs may be dying out for many small businesses because of other changes to HRA rules.
So you have a sole proprietorship. You hired your spouse and you set up an HRA because of the tax advantages (self-employment tax savings) of running medical expenses through the HRA as deductible business expenses via your spouse. Before July 31, you’ll need to fill out a Form 720 and send a
$1 $2 check to the U.S. Treasury ( $1 $2 x the number of participants in the HRA).
This is insane, of course. An abject waste of a small business’s time. But it’s what the Affordable Care Act calls for.
Certainly a $1 or $2 fee is no reason to eliminate your HRA. But it’s yet another piece of paperwork to keep track of and another form to fill out.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”