What are PCORI fees?
The Affordable Care Act created a non-profit corporation, the Patient-Centered Outcomes Research Institute (“PCORI”), to conduct research to help individuals, providers and policy makers make better choices in health care by advancing comparative research on clinical effectiveness. The PCORI is funded by fees imposed under Sections 4375 and 4376 of the Internal Revenue Code (“Code”) on insurers of fully insured health plans and employers who sponsor self-insured health plans (“PCORI Fees”) ).
The PCORI fee was originally in effect for plan years ending on or after October 1, 2012 and before October 1, 2019, but the Supplemental Consolidated Credits Act 2020 extended the PCORI fee to plan years. plan ending on or before October 1, 2029. A regulation interpreting the law was published on December 6, 2012.
This article discusses the PCORI fee obligations of plan sponsors with respect to self-insured health plans and does not address the PCORI fee obligations of insurers with respect to fully insured health plans.
When are PCORI fees due and how are they reported?
PCORI fees are paid annually and are due no later than July 31 immediately following the end of the calendar year in which the plan year ends, unless that date falls on a weekend or federal holiday. . For plan years ending in 2021, fees are due by August 1, as July 31, 2022 is a Sunday.
PCORI fees are paid using Part II of IRS Form 720, Quarterly Federal Excise Tax Return. Electronic filing is available through the Electronic Federal Tax Payment System (“EFTPS”), but is not required. Although Form 720 is a quarterly return, if it is used solely to pay PCORI fees, it only needs to be filed once a year, for the second quarter.
Which self-insured plans are subject to fees?
According to the preamble to the final rule, the fee for self-insured plans applies to “any plan . . . provide coverage in the event of accident or sickness if part of the coverage is provided otherwise than through an insurance policy” and the plan is established or maintained for employees or former employees by an employer, a trade union or certain groups of employers (identified in the following question), except what follows:
- government programs such as Medicare, Medicaid, Children’s Health Insurance Program, military health plans and certain Indian tribal government health plans;
- Benefits excluded from HIPAA under Code Section 9832(c), such as stand-alone dental or vision plans, accident-only plans, disability-only plans, hospital allowances or specified illness benefits, on-site medical clinics, and healthcare Flexible Spending Accounts (FSAs) unless the FSA is a “non-excepted benefits” FSA, which means that the employer contributes to the FSA: (i) more than $500 per plan year, or (ii) a dollar-for-dollar match of the employer’s contribution ’employee ;
- plans designed to primarily cover employees working and residing outside of the United States (“Expatriate Plans”);
- Health Savings Accounts (“HSA”); and
- Employee Assistance Plans (“EAPs”), Sickness Management Plans, and Wellness Plans that do not provide “significant medical care or treatment.” Note that there is currently no guideline defining “significant medical care or treatment”.
To be clear, retiree-only plans and healthcare reimbursement agreements (HRAs) are subject to PCORI fees.
Who pays the PCORI fees for self-funded plans?
PCORI fees are imposed on the plan sponsor of self-insured health insurance plans. The plan sponsor is:
- the employer, for a single employer plan;
- employee organization, for a plan maintained by an employee organization;
- the joint board of directors, for a multi-employer plan as defined in Section 3(37) of ERISA;
- the committee administering a multi-employer welfare arrangement as defined in Section 3(40) of ERISA (“MEWA”);
- a trustee of a voluntary association of beneficiary employees described in section 501(c)(9) of the Code; Where
- the cooperative or association that establishes a rural electricity cooperative as defined in section 3(40)(B)(iv) of ERISA or the cooperative rural telephone association, as defined in section 3 (40)(B)(v) of ERISA.
How are the fees calculated?
Generally, the PCORI fee amount is the product of the average number of “lives covered” for the plan year multiplied by the “applicable dollar amount” for the plan year.
“Covered Lives” means Participants, Spouses, Dependents, COBRA Beneficiaries and Other Beneficiaries.
Applicable dollar amount
The “Applicable Dollar Amount” is adjusted and published annually by the IRS to reflect inflation in national health care spending, as determined by the Secretary of Health and Human Services. For plan years ending after September 30, 2020 and before October 1, 2021, the applicable amount is $2.66. For plan years ending after September 20, 2021 and before October 1, 2022, the applicable amount is $2.79.
Count the lives covered
For self-insured plans, there are three options for counting covered lives: (i) the actual count method; (ii) the Form 5500 method; and (iii) the snapshot method, which itself includes two alternatives. The three methods are summarized below, but more details can be found in section 46.4376-1 of the final rulebook.
- Actual count method: This method requires calculating the sum of the actual number of lives covered for each day of the plan year and dividing this sum by the number of days of the plan year.
- Form 5500 method: This method uses the number of participants reported on Form 5500 to calculate the average number of lives covered. The downside to this method is that the plan sponsor must file Form 5500 before the PCORI fee due date (usually July 31); therefore, if a calendar year plan sponsor files Form 5500 on the extension, as many do, they cannot use this method. To determine the average covered life of a plan using the Form 5500 method, a plan that offers only one single coverage will add the number of participants reported at the beginning of the year to the number of declared at the end of the year and divide this amount by 2. Plans that offer other levels of coverage (for example, employee + 1, family coverage) simply add the counts of participants at the beginning and end of the year, without dividing by 2.
- Snapshot method: This method includes two alternatives.
- The “instant count” method calculates the lives covered by adding the total number of lives covered on one or more dates during the first, second or third month of each quarter of the plan year, then dividing the sum by the number of dates on which the count was made. The dates selected for each quarter do not have to be the same, but the dates for the second, third and fourth quarters must be within 3 days of the date that corresponds to the date of the first quarter.
- The “snapshot factor” method works the same way as the number of snapshots method, except that instead of counting all lives covered on the snapshot date, it requires counting the number of participants with personal coverage only on the snapshot date and the number of participants with other coverage. levels at the snapshot date. The calculation of the average duration of insurance covered on the snapshot date is equal to the sum of: (a) the number of participants with individual coverage on the snapshot date, plus (b) the number participants with other coverage levels at the snapshot date multiplied by 2.35; all divided by the total number of dates on which the count was made.
Special rules for counting lives in FSAs, HRAs and multiple self-funded plans
Plan sponsors who only maintain a non-excluded benefit FSA or HRA need only have one covered life for each FSA or HRA participant. In other words, even though funds from an FSA or HRA can be used to provide benefits to spouses or dependent children, in these limited circumstances the plan sponsor can ignore other beneficiaries in the tally the lives covered and simply count the individual participants.
In addition, plan sponsors who maintain multiple self-insured plans with the same plan year do not need to have a person participating in multiple self-insured plans more than once. In other words, a plan sponsor can combine multiple self-insured plans with the same plan year and treat them as a single plan for PCORI fee calculation purposes. It is important to note, however, that the plans must all be self-insured in order to be grouped together. For example, if a plan sponsor maintains an HRA that is integrated with a fully insured major medical insurance plan, the plan sponsor will incur a PCORI fee for its HRA participants, and the insurer will pay a second PCORI fee for the same participants who participate in the insured medical plan.
What else should an employer who sponsors a self-insured health insurance plan know?
- Because the PCORI fee is imposed on the plan sponsor and not the plan, the Department of Labor has advised that the fee may not be paid from plan assets (that’s to say., assets held in trust or employee contributions for benefits).
- PCORI fees are deductible by the plan sponsor as ordinary and necessary business expenses under Section 162(a) of the Code.
- If the plan sponsor discovers an error in the filing of Form 720 after it is submitted, including an overpayment, they can file an amended statement using Form 720-X.
- Instructions for Form 720 state that plan sponsors must keep records of Form 720 filings for at least four years. Be sure to keep records to support the PCORI fee calculation.
August 1st is fast approaching.