The IRS announced an update to the Patient-Centered Outcomes Research Institute (PCORI) Fee in Notice 2018-85. The new fee for plans ending on or after October 1, 2019 has increased from $2.39 to $2.45 per average Covered life. This is the last applicable inflation adjustment as we reach the phase out in 2019 of this fee on plan sponsors and issuers of individual and group policies.
What is PCORI?
The Patient Protection and Affordable Care Act (ACA) includes a provision that promotes research to evaluate and compare health outcomes along with the clinical effectiveness, risks and benefits of medical treatments, services, procedures, drugs and other strategies that treat, manage, diagnose or prevent illness or injury. The PCORI was created to fulfill this provision. The funding source for the PCORI is a trust financed by fees paid by health insurers and sponsors of self-insured health plans.
Responsibility for calculating and paying the PCORI fee rests on the health insurer for a fully insured plan and with the plan sponsor for a self-insured plan (employers that do not provide any self-insured coverage do not have filing responsibilities). Plan sponsors of self-insured plans pay and report the PCORI fee on Form 720 “Quarterly Federal Excise Tax Return.” Though it is called a “quarterly” return, Form 720 for PCORI fee purposes is only filed once a year. A copy of Form 720 and instructions on how to complete and file it can be found on the IRS website.
Plan sponsors must report and pay the fee for a plan year by July 31 of the calendar year immediately following the last day of the plan year.
For plan years ending before October 1, 2013, the PCORI fee was $1 times the average number of lives covered under the plan. Fees increased as follows for later plan years ending before.
October 1, 2014 —$2.00 multiplied by the average number of lives covered under the plan.
October 1, 2015 —$2.08 multiplied by the average number of lives covered under the plan.
October 1, 2016 —$2.17 multiplied by the average number of lives covered under the plan.
October 1, 2017 —$2.26 multiplied by the average number of lives covered under the plan.
October 1, 2018 —$2.39 multiplied by the average number of lives covered under the plan.
October 1, 2019 —$2.45 multiplied by the average number of lives covered under the plan.
Who Has To File?
Medical plans
Prescription drug plans
Self-insured dental or vision plans, if provided without a separate election or premium charge
HRAs
Some Hhealthcare FSAs
Retiree-only health plans of the types listed above (even though exempt from other PPACA mandates)
Health plans of the types listed above provided by governmental employers for their employees
Who is Exempt?
Separately-insured dental or vision plans
Self-insured dental or vision plans, if subject to separate coverage elections and employee contributions
Expatriate coverage provided primarily for employees who work and reside outside of the U.S.
HSAs
Most healthcare FSAs
EAPs, wellness programs, and disease management programs that do not provide "significant benefits in the nature of medical care or treatment"
What Methods Can Be Used To Calculate The Fee?
Method 1: Actual Count Method A sponsor may determine the average number of lives covered under the plan for the plan year by calculating the sum of the lives covered for each day of the plan year and dividing that sum by the number of days in the plan year.
Method 2: Snapshot Method A plan sponsor may determine the average number of lives covered under the plan for the plan year by adding the totals of lives covered on a date during the first, second, or third month in each quarter, or an equal number of dates for each quarter, and dividing the total by the number of dates on which a count was made. Like the snapshot method for insured plans, the regulations do not require that a specific date be used for each month or quarter, but do provide specific rules to ensure that similar dates are used each month.
Method 3: Form 5500 Method A sponsor may determine the average number of lives covered under the plan for the plan year based on a formula that includes the number of participants actually reported on the Form 5500 for the plan year. A plan sponsor may only use this method if the Form 5500 is filed no later than the due date for the fee imposed for that plan year. Under this method, the total number of lives is determined by simply adding the total participant counts at the beginning and end of the year and dividing by 2 for a plan that only offers single coverage.
QUESTIONS?
Contact AJM Associates at (248) 778-6070 or at info@ajmassoc.com