Health care reform created a new nonprofit corporation, the Patient-Centered Outcomes Research Institute (PCORI), to support clinical effectiveness research. PCORI is funded by fees paid by certain health insurers and sponsors of self-insured health plans. Its purpose is to fund research that can help patients and those who care for them make better-informed decisions about the healthcare choices they face every day, guided by those who will use that information. PCORI funds research likely to change practice and improve patient outcomes, focusing on sharing those results with the public. The fees, required to be reported only once a year on the second quarter Form 720 and paid by its due date, July 31, is based on the average number of lives covered under the policy or plan.

Fees are payable in connection with major medical self-insured health plans. Fees are payable by sponsors of self-insured health plans. Employers, for a single employer plan, are responsible for the fee for self-insured plans, self-insured plans subject to the fee include HRAs and FSAs.

The IRS has announced that the adjusted applicable amount is $2.26 for policy or plan years ending on or after October 1, 2016 and before October 1, 2017. The fee imposed on a plan sponsor of a self-insured health plan is based on the average number of lives covered under the plan. This means not just employees covered under the policy or plan, but also dependents and former employees still receiving coverage under the policy or plan.

The regulations give self-insured plans a choice to use any of three alternative methods;

  • First, 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 (called the “actual count method”).
  • Second, 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 (called the “snapshot method”).
  • Third, 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 (called the “Form 5500 method”).

To learn more about PCORI fees, click here to visit the IRS website.

For FAQs, click here.