PCORI (Patient Centered Outcomes Research Institute) Fees

On December 6, 2012 the IRS issued final regulations regarding the ‘temporary’ annual payment of the PCORI Fees by fully-insured carriers and self-insured plan sponsors of ‘applicable’ health plans, including those covering retirees and COBRA individuals (Internal Revenue Code Sections 4375 and 4376).

Beginning July 2013, the fully insured carriers and most plan sponsors of self-insured health plans were responsible for paying the annual fees directly to the IRS and were required to report the same on Form 720 as an excise tax.

A few reminders and important notes for payment due July 31, 2016:

  • ‘Temporary’ as quoted above means this excise tax is to be paid and is applicable for plan years ending on or after October 1, 2012 but stops for plan years ending on or after October 1, 2019.
  • ‘Applicable’ health plans as quoted above are defined as a self-insured health plan that provides for accident and health coverage but there are exceptions for excepted benefits.
  • Excepted benefits are defined as separate dental and vision plans, health flexible spending arrangements, hospital indemnity plans, disability income insurance for example.
  • HRAs that are integrated with another self-insured health plan are considered part of a single plan and duplication of fees are avoided. However, if the employer sponsors an HRA that is integrated with a fully-insured medical plan, the employer must submit payment for members in the HRA, even though the insurer (carrier) will also be submitting fees for the same individuals enrolled in the associated insured plan. Only employees are counted towards calculating the PCORI Fees for the HRA integrated with a fully-insured medical plan.
  • Health FSAs are not subject to the PCORI Fee if it meets the requirements of an ‘excepted benefit’ under Code §9832(c). A health FSA is an excepted benefit if:
    • The maximum benefit that is available to a participant in any given year is not more than twice his or her contribution (or, if greater, his or her contribution plus $500) and
    • Major medical coverage is made available that same year.

How much are the Fees?

  • For Plan Years ending on or after January 1, 2015 and before October 1, 2015 the PCORI fee is $2.08 per covered life.
  • For Plan Years ending on or after October 1, 2015 through December 31, 2015, the PCORI fee is $2.17 per covered life.
  • For Plan Years ending on or after January 1, 2016 the PCORI fee will be indexed each Federal fiscal year per covered life (based on the increases of projected per capita amount of National Health Expenditures).
  • For Plan Years ending on or after October 1, 2019, there is no fee.

The following will describe how the number of covered lives are counted applicable to the Self-Funded Health Plans

  • Actual Count Method – the plan sponsor must add the total number of lives covered (this includes all covered lives, not just enrolled employees) for each day of the plan year and divide that total by the number of days in the plan year.
  • Snapshot Method – the plan sponsor must add the total number of lives covered on a specified date (see Snapshot Factor Method and Snapshot Count Method below) during the first, second or third month of each quarter of the plan year and divide the total by the number of dates on which the count was made. Each date used for the second, third or fourth quarter must be within three days of the date used in the first quarter.
    • Snapshot Factor Method – under this method the number of lives covered on a date is equal to the total of:
      • The number of participants with self-only coverage on that date plus
      • The number of participants with coverage other than self-only coverage on that date.
      • The total of the two above is then multiplied by 2.35
    • Snapshot Count Method – under this method the number of lives covered on a date equals the actual number of lives covered on the designated date.
  • Form 5500 Method – this method is based on the number of participants reported on the Form 5500. This method can be used only if the Form 5500 is filed no later than the due date of the PCORI Fee (July 31). If an extension is used resulting in Form 5500 being filed later than July 31, this method cannot be used to calculate the average number of covered lives.
    • If the plan sponsor is offering self-only coverage they must add the total participants covered at the beginning and the end of the plan year, as reported on Form 5500, and divide by two.
    • If the plan sponsor is offering more than self-only coverage they must add the total participants covered at the beginning and the end of the plan year as reported on Form 5500 (and do not divide by two).

In Summary:

  • Fees are paid annually.
  • Fees are reported and paid by July 31 of the calendar year immediately following the last day of the plan year.
  • Total due each year is calculated by multiplying the average number of covered lives by the dollar amount for the Federal fiscal year in effect on the last day of the plan year.
  • Fees are paid using IRS Form 720 – Quarterly Federal Excise Return – the link below will take you directly to the IRS site and provide the revised form along with instructions on how to complete the form. On the form – Part II; IRS No. 133 – Applicable self-insured health plans.
  • Three allowed methods for determining the number of covered lives.
  • The PCORI Fee cannot be paid from Plan Assets.
  • The PCORI Fee cannot be submitted by a third party on a plan sponsor’s behalf.
  • The PCORI Fee is not tax deductible.

See PDF below for a quick reference chart.

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See 2015’s PCORI post for similar information.

Source: Group Benefit Services, April 6, 2016, Issue 43

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