Under the Affordable Care Act (ACA), most group health plans ending after September 30, 2012, are subject to a
Comparative Effectiveness Research Fee (PCORI Fee). This fee doesn’t apply to a few specific exceptions but does apply to:
- Grandfathered plans
- Nongrandfathered plans
- Small group market plans
- Large group market plans, and
- Self-funded health plans
The PCORI Fee
The ACA created the Patient-Centered Outcomes Research Institute to study clinical effectiveness and health outcomes. To finances the Institute’s work, group health plans must pay a small annual fee often referred to as the PCORI fee.
This fee applies for each plan year ending between October 1, 2012, and September 20, 2019. The fee is an annual amount multiplied by the number of plan participants. The PCORI fee has increased slightly since 2013 and is:
- $2.39 per year per participant for plan year ending between October 1, 2017 and September 30, 2018.
- $2.45 per year per participant for plan year ending between October 1, 2018 and September 30, 2019.
Insurers are responsible for calculating and paying the fee for insured plans. Employers sponsoring self-insured (self-funded) plans are responsible for calculating and paying the fee concerning those plans. Payment is due by July 31, following the calendar year in which the plan year ends.
For Whom Does the Fee Apply?
The PCORI fee usually applies to all group health plans, except:
- HIPAA-excepted benefits
- Plans that don’t provide significant benefits for medical care or treatment
- Stop-loss insurance policies
- Health savings accounts (HSAs)
- A health reimbursement arrangement (HRA) that’s integrated with another self-insured plan sponsored by the same employer and isn’t subject to a separate fee. Though, if the HRA is standalone, integrated with an insured plan, or integrated with a different sponsor’s self-insured plan, then the HRA plan sponsor must calculate and pay the fee.
How do you determine the average number of lives covered under the policy or plan to calculate the PCORI fee for the year?
The PCORI fee is based on the average number of lives covered under the policy for the policy year or the plan for the plan year. Final fee regulations require issuers of specified health insurance policies to use one of four alternative methods to determine the average number of lives covered under a specified health insurance policy for a policy year. These four methods are:
- The actual count method
- Snapshot method
- Member-months method
- State form method
Also, fee regulations require plan sponsors, of applicable health plans, to use one of three alternative methods to determine the average number of lives covered under the applicable self-insured health plan for a plan year. These three methods are:
- The actual count method
- Snapshot method
- Form 5500 method
How do these methods of counting covered lives work?
1.Actual Count Method – 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 total number of days in the plan year.
2. Snapshot Method – A plan sponsor may determine the average number of lives covered under an applicable self-insured health plan for a plan year based on the total number of lives covered on one date (or more dates if an equal number of dates is used in each quarter) during the first, second, or third month of each quarter, and dividing that total by the number of dates on which a count was made. Plan sponsors using this method also have the option of using the Snapshot Factor Method. In that case, instead of counting each covered participant, the employer may elect to count “primary” participants (e.g., employees) only. Then multiply the number of primary participants with self-only coverage by 1 an multiply the number of primary participants with dependent coverage by 2.35.
3. Form 5500 Method – An eligible 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. Add the number of plan participants reported on the Form 5500 or 5500-SF at the beginning and at the end of the plan year. If, however, the plan only provides self-only coverage (i.e., no dependent coverage), then divide the total by 2. To use this counting method, the Form 5500 or 5500-SF must be filed for the plan year by July 31 of the following year, which is the PCORI fee due date.
Which individuals do you count when determining the lives covered under a specified health insurance policy or applicable self-insured health plan?
Typically, 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, an applicable self-insure health plan, for example, must count an employee and his dependent child as two separate covered lives unless the plan is an HRA or a flexible spending arrangement (FSA).
If an employer provides COBRA coverage or otherwise provides coverage to retirees or other former employees, do covered individuals count as ‘lives covered’ for the purpose of calculating the PCORI fee?
Yes. These covered individuals and their beneficiaries must be taken into account when calculating the number of lives covered.
Who’s responsible for reporting and paying the PCORI fee?
Issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans are responsible and paying the PCORI fee.
What form is used to report and pay the PCORI fee?
Issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans will file annually Form 720, Quarterly Federal Excise Tax Return, to report and pay the PCORI fee. Form 720 is due on July 31 of the year following the last day of the policy year or plan year. Electronic filing is available but not required. Payment is due at the time Form 720 is due, and deposits aren’t necessary for the PCORI fee.
Issuers and plan sponsors who are required to pay the PCORI fee but aren’t required to report any other liabilities on Form 720 will be required to file a Form 720 only once a year. They will not be required to file a Form 720 for the other quarters of the year.
Issuers and plan sponsors who are required to pay the PCORI fee as well as other liabilities on Form 720 will use their Form 720 for the 2nd quarter to report and pay the PCORI fee that’s due July 31. You should file only one Form 720 for each quarter.
What exceptions to the PCORI fee apply?
The PCORI fee doesn’t apply to exempt governmental programs including Medicare, Medicaid, Children’s Health Insurance Program (CHIP), and any program established by federal law for providing medical care to members of the armed forces, veterans, and members of Indian tribes.
Also, health insurance policies and self-insured plans that provide only excepted benefits, such as plans that offer benefits limited to vision or dental benefits and most FSAs, aren’t subject to the PCORI fee.
Furthermore, health insurance policies or self-insured plans that are limited to employee assistance programs, disease management programs, or wellness programs aren’t subject to the PCORI fee if these programs don’t provide significant benefits in medical care or treatment.
The PCORI fee applies only to policies and plans that cover individuals residing in the U.S. Thus; the PCORI fee doesn’t apply to policies and programs that are designed specifically to cover employees who are working and residing outside the U.S.
Are health insurance policies or self-insured health plans for tax-exempt organizations or governmental entities subject to the PCORI fee?
Yes. Unless the health insurance policy or self-insured health plan is an exempt governmental program described above, the policy or plan is a specified health insurance policy or applicable self-insured health plan subject to the PCORI fee, and, accordingly, the health insurance issuer or plan sponsor is responsible for the PCORI fee.
Does the PCORI fee apply to an applicable self0insured health plan that has a short plan year?
Yes, the PCORI fee applies to a short plan year of an applicable self-insured health plan. A short plan year is a plan year that spans fewer than 12 months and may occur for several reasons. For example, a newly established applicable self-insured health plan that operates using a calendar year has a short plan year as its first year if it was created and began operating beginning on a day other than January 1. Similarly, a plan that operates with a fiscal plan year experiences a short plan year when its plan year is changed to a calendar year plan year.
What is the PCORI fee for the short plan year?
The PCORI fee for the short plan year of an applicable self-insured health plan is equal to the average number of lives covered during that plan year multiplied by the applicable amount for that plan year.
What is the PCORI fee due date for the short plan year?
The due date for the PCORI fee is July 31 of the year following the last day of the plan year, including a short plan year.
Can a plan sponsor or policy issuer that overpaid the PCORI fee due July 31 reduce the PCORI fee due the following July 31 for the prior year’s overpayment?
No. Plan sponsors and policy issuers cannot reduce the PCORI fee due July 31 for any overpayment from a prior year. If a plan sponsor or policy issuer overpaid the PCORI fee reported on a previously filed Form 720, it should file Form 720X, Amended Quarterly Federal Excise Tax Return, for an overpayment previously filed PCORI liability.
How should corrections to a previously filed Form 720 be made, for example, that determined a fee using an incorrect applicable dollar amount?
A plan sponsor or policy issuer should make corrections to a previously filed Form 720 by filing a Form 720X, Amended Quarterly Federal Excise Tax Return, including adjustments that result in an overpayment. Form 720X may be filed anytime within the applicable limitation period.