What is the PCORI Fee?
We’ve been talking about PCORI fees in our office a lot lately. The most important thing to know is that the deadline to pay the PCORI fees is July 31, 2017. But what else should you know?
What is PCORI?
PCORI stands for the Patient-Centered Outcomes Research Institute. It was established as a part of the Affordable Healthcare Act (ACA) to conduct research to evaluate the effectiveness of medical treatments, procedures and strategies that treat, manage, diagnose or prevent illness or injury. The PCORI fees are paid to fund this research.
Who pays these fees?
Insurance carriers are responsible for paying the PCORI fee on behalf of a fully insured plan. The employer is responsible for paying the fee on behalf of a self-insured plan, including a Health Reimbursement Arrangement (HRA).
How much are we talking?
The amount of the PCORI fees due by an employer or an insurer is based upon the number of covered lives under each “applicable self-insured health plan” and “specified health insurance policy” and the plan or policy year end date.
- For plan years that ended between January 1, 2016 and September 30, 2016, the fee is $2.17 per covered life and is due by July 31, 2017.
- For plan years that ended between October 1, 2016 and December 31, 2016, the fee is $2.26 per covered life.
For example, a plan year that ran from October 1, 2015 through September 30, 2016 will pay a fee of $2.17 per covered life. Calendar year 2016 plans will pay a fee of $2.26 per covered life.
How do we count the number of lives covered?
If only it were as easy as 1, 2, 3… Plan sponsors or employers 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.
How do you report and pay PCORI fees?
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. It is important to note that the PCORI fees should not be built into the premium equivalent rate that is developed for self-insured plans if they plan includes employee contributions. However, an employer’s payment of PCORI fees is tax deductible as an ordinary and necessary business expense. And don't forget, the deadline is July 31, 2017!
If you have an FSA, do you have to pay PCORI fees?
No. In general, health FSAs are not subject to the PCORI fee.
What if I just changed to a self-insured plan or an HRA in 2017, do I have to pay the fees on July 31, 2017?
The PCORI fees to be paid on July 31, 2017 are for plans that ended in 2016. If you started a self-insured plan or an HRA in 2017, your plan year won't end until 2018. You will pay PCORI fees in 2019.
Do these fees ever end?
Under the ACA, most employer sponsors and insurers will be required to pay PCORI fees until 2019.
What if I still have questions about PCORI?
Click here for a deeper dive, or call us! We can help!