It’s that time of year again to start preparing to file the annual Patient-Centered Outcomes Research Trust Fund (PCORI) fee as mandated by the Affordable Care Act (ACA). The PCORI fee applies to specified health insurance and applicable self-insured plans with policy years ending after September 30, 2012, and before October 1, 2019. The deadline for applicable plans subject to filing is July 31, 2015.
Below are our top seven most frequently-asked questions regarding the PCORI fees:
Who pays the fee?
Issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans are responsible for reporting and paying the PCORI fee.
A specified health insurance policy includes only accident and health insurance policies that are issued with respect to an individual residing in the United States.
An applicable self-insured health plan is a plan that is established or maintained by a plan sponsor for the benefit of employees, former employees, members, former members, or other eligible individuals to provide accident and health coverage, any portion of which is provided other than through an insurance policy and that meets certain other conditions, such as a health reimbursement arrangement (HRA) account.
How do we calculate the PCORI fee?
The amount of the PCORI fee is equal to the average number of lives covered during the policy year or plan year multiplied by the applicable dollar amount for the year, as follows:
- For policy and plan years ending after September 30, 2013, and before October 1, 2014, the applicable dollar amount is $2.
- For policy and plan years ending after September 30, 2014, and before October 1, 2015, the applicable dollar amount is $2.08.
- For plan years ending between October 1, 2015, and September 30, 2019, the amount will be adjusted for inflation.
To determine the average number of lives covered under an applicable self-insured health plan during a plan year, a plan sponsor must use one of the following: (1) the actual count method; (2) the snapshot dates method; or (3) the Form 5500 method.
The final regulations explain the available methods in detail in § 46.4375-1 “Fee on issuers of specified health insurance policies.”
Special note: HRAs integrated with a fully-insured plan need only pay the PCORI fee for the employee participant.
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 dollar amount for that plan year.
How do we report the PCORI fee?
Issuers of health plans will file annually Form 720, Quarterly Federal Excise Tax Return, to report and pay the PCORI fee. This is reported on Line 133, using either (a) for specified health insurance policies or (b) for applicable self-insured health plans.
The Form 720 will be due on July 31 of the year following the last day of the policy year or plan year. For example, for the employer’s plan year ending November 30, 2014, applicable PCORI fees are due July 31, 2015.
Do PCORI fees apply to dental and vision plans?
No, health insurance policies and self-insured plans that provide only excepted benefits, such as plans that offer benefits limited to vision or dental benefits are not subject to the PCORI fee.
Do PCORI fees apply to employer contributions made to health savings accounts (HSAs)?
No. HSAs are not health plans, but rather individual savings accounts. Employer contributions to a HSAs are not subject to the PCORI fee.
Do PCORI fees apply to health flexible spending accounts (FSAs)?
If the health FSA is excepted, the PCORI fees do not apply.
Many health FSAs are excepted based on health care market reforms that took effect in 2014.
Health FSAs generally constitute excepted benefits if:
- The employer also makes available group health plan coverage that is not limited to excepted benefits for the year to the class of participants by reason of their employment; and
- The arrangement is structured so that the maximum benefit payable to any employee participant in the class cannot exceed two times the employee’s salary reduction election for the arrangement for the year; or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election.
Special rules apply for non-excepted health FSAs. If a plan sponsor only maintains a FSA, then the plan sponsor may treat each participant’s account as covering a single life, and the plan sponsor is not required to count spouses or other dependents.
If the health FSA is sponsored by a plan sponsor that also has an applicable self-funded health plan (that is not a FSA), the two arrangements may be treated as one plan.
Do PCORI fees apply to health reimbursement arrangements (HRAs)?
Yes, unless the HRA satisfies the requirements for being treated as an excepted benefit. If not considered an excepted benefit, special rules apply for coverage under multiple applicable self-insured health plans:
If the only applicable self-insured plan offered by the employer is an HRA, the plan sponsor may treat each participant’s HRA as covering a single life (and will not have to count spouses or dependents).
Where an HRA is integrated with a self-insured plan, the HRA is not subject to a separate fee, as long as the HRA and the plan are:
- Established and maintained by the same plan sponsor; and
- Have the same plan year.
For an HRA integrated with a fully-insured plan, the plan sponsor of the HRA and the issuer of the insured plan will both be subject to the research fees, even though the HRA and insured group health plan are maintained by the same plan sponsor.
Additional information regarding the PCORI fee can also be found on the IRS website: