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New Excise Tax Due July 31, 2013 on Plan Sponsors of Self-Funded Plans

June 21, 2013

Dina Ouellette, CPA
Tax Director

The Affordable Care Act imposes fees on issuers of specified health insurance policies and on plan sponsors of applicable self-insured health plans.  Self-insured health plans also include health reimbursement arrangements (HRAs).

The fees apply to policy or plan years ending on or after October 1, 2012 and before October 1, 2019.  The fees are required to be reported annually on the second quarter Form 720 (Quarterly Federal Excise Tax Return) and paid by its due date, July 31. 

If you have a self-funded plan, the plan sponsor pays an excise tax of $1 multiplied by the average number of lives covered by the plan for that plan year.  Plan sponsors can use one of three methods to determine the average number of lives covered:

  • Actual Count – Count the total covered lives for each day of the plan year and divide by the number of days in the plan year.

  • Snapshot dates – Count the total number of covered lives on a single day in a quarter (or more than one day) and divide the total by the number of dates on which a count was made. (The date or dates must be consistent for each quarter.)
    • Snapshot Factor – In the case of self-only coverage, determine the sum of: (1) the number of participants with self-only coverage, and (2) the number of participants with other than self-only coverage multiplied by 2.35.
  • Form 5500 Method – For self-only coverage, determine the average number of participants by combining the total number of participants at the beginning of the plan year with the total number of participants at the end of the plan year as reported on the Form 5500 and divide by 2. In the case of plans with self-only and other coverage, the average number of total lives is the sum of total participants covered at the beginning and the end of the plan year, as reported on the Form 5500.

Note that for the first year plan sponsors may determine the average number of lives covered using any reasonable method.  Generally, all individuals who are covered during the policy year or plan year must be counted in computing the average number of lives covered for that year.  Thus, for example, an applicable self-funded health plan must count an employee and his dependent child as two separate covered lives unless the plan is a health reimbursement arrangement (HRA) or non-exempt flexible spending arrangement, in which case only the employee is counted.

Health insurance policies and self-funded plans that provide only excepted benefits, such as plans that offer benefits limited to vision or dental benefits and most flexible spending arrangements (FSAs), are not subject to the fee.  Further, health insurance policies or self-funded plans that are limited to employee assistance programs, disease management programs or wellness programs are not subject to the fee if these programs do not provide significant benefits in the nature of medical care or treatment.

Most insurance brokers have been notifying their clients of this upcoming excise tax.  The Form 720 can be found on  


Disclaimer: Under U.S. Treasury Department guidelines, we hereby inform you that (1) any tax advice contained in this communication is not intended or written to be used, and cannot be used by you, for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service (or state and local or other tax authorities), and (2) no part of any tax advice contained in this communication is intended to be used, and cannot be used, by any party to promote, market or recommend any transaction or tax-related matter(s) addressed herein without the express and written consent of Blum, Shapiro & Company, P.C.


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