The Affordable Care Act (ACA) created the Patient-Centered Outcomes Research Institute (PCORI) to help patients, clinicians, payers and the public make informed health decisions by advancing comparative effectiveness research.
The PCORI fee went into effect for plan years ending after September 30, 2012. PCORI is also referred to as the Comparative Effectiveness Research Fees (CERF).
The PCORI fee is indexed annually to a spending amount defined in the law. It started at $1 and has increased gradually. The current fee, applicable to plan years ending prior to October 1, 2019, is $2.45 per participant.
In the spending bill passed late in 2019, the PCORI fee (which was set to expire) was extended another 10 years. However, as of today, we have not received guidance from the IRS on updated fees, and Form 720 has not been updated either. We expect to receive further guidance in the coming weeks. For now, please read further to find out if your employer must pay fees due July 31, 2020.
Will there be an extension to pay the PCORI fees? At the time of this writing, the IRS has not announced an extension on the due date.
Which employers have to pay by the current deadline of July 31, 2020? Employers that sponsored self-insured medical plans, including HRAs, for plan years that ended from January of 2019 to December of 2019.
Doesn’t the insurance company pay on an employer’s behalf? For fully insured plans, the carrier is responsible for paying the fees. The carrier does not pay PCORI fees on behalf of self-insured plans including HRAs.
How does my organization file? Employers that sponsor self-insured group health plans, including HRAs, must report and pay PCORI fees using IRS Form 720, Quarterly Federal Excise Tax Return. Please note this is a tax form, and as such, your organization’s tax expert may be in the best position to assist.
How much does my company pay if my plan year ended between October 1, 2019 and December 31, 2019? At this point, the IRS has not released the updated PCORI amounts for these plan years. Additionally, the Form 720 has not been revised to reflect these amounts. Therefore, we believe further guidance will be issued in the coming weeks.
What action should my organization take if we had a self-insured medical plan or HRA in 2019? It seems best to move forward as if there will be no extension. Therefore, it’s prudent to gather the necessary data to calculate the PCORI fees and contact the appropriate party who will assist with the Form 720 filing.
Counting Methods for Self-Insured Plans
Plan sponsors may choose from three methods when determining the average number of lives covered by their plans.
Actual Count method: Plan sponsors may calculate the sum of the lives covered for each day in the plan year and then divide that sum by the number of days in the year.
Snapshot method: Plan sponsors may calculate the sum of the lives covered on one date in each quarter of the year (or an equal number of dates in each quarter) and then divide that number by the number of days on which a count was made. The number of lives covered on any one day may be determined by counting the actual number of lives covered on that day or by treating those with self-only coverage as one life and those with coverage other than self-only as 2.35 lives (the “Snapshot Factor method”).
Form 5500 method: Sponsors of plans offering self-only coverage may add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, in each case as reported on Form 5500, and divide by 2. For plans that offer more than self-only coverage, sponsors may simply add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, as reported on Form 5500.
Special rules for HRAs: The plan sponsor of an HRA may treat each participant’s HRA as covering a single covered life for counting purposes, and therefore, the plan sponsor is not required to count any spouse, dependent or other beneficiary of the participant. If the plan sponsor maintains another self-insured health plan with the same plan year, participants in the HRA who also participate in the other self-insured health plan only need to be counted once for purposes of determining the fees applicable to the self-insured plans.