Healthcare reform created a 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. Guided by those who will use that information, 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. PCORI fees fund research likely to change practice and improve patient outcomes, focusing on sharing those results with the public. The fees, which were originally set to expire for plans ending on or after October 1, 2019, were extended for another 10 years. They are now set to expire for plans ending on or after October 1, 2029.
Who is responsible for the fee?
PCORI fees are paid by plan sponsors in connection with major medical self-insured health plans. For a single employer plan, the employer is responsible for the fee. Self-insured plans subject to PCORI fees also include HRAs and health FSAs that do not qualify as excepted benefits. The fees for fully-insured major medical plans are paid by the health insurance issuer.
How often are the fees required to be reported?
The fees are required to be reported only once a year on the second quarter Form 720 and are traditionally paid no later than July 31 of the year following the last day of the policy or plan year. July 31st falls on a Sunday this year, so fees will be due by Monday, August 1 based on the filing instructions outlined by the IRS, “if any due date for filing a return falls on a Saturday, Sunday, or legal holiday, you may file the return on the next business day.” For example, a Form 720 that reported the fee on an HRA for the year ending on December 31, 2021, is required to be filed by Monday, August 1, 2022. Similarly, a return that reported the fee for a health plan for a plan year that ended on March 31, 2021, will be required to be filed by Monday, August 1, 2022.
What are the applicable rates?
Plans ending on or after October 1, 2020, and before October 1, 2021, had fees of $2.66 per covered life. The IRS announced that the adjusted applicable amount is $2.79 per covered life for policy or plan years ending on or after October 1, 2021, and before October 1, 2022. 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 that plan sponsors must count not just employees, but also dependents and former employees still receiving coverage under the policy or plan. Plan sponsors whose only self-insured health plan is an HRA or health FSA can treat each account as only covering one life, disregarding the spouse and dependents for counting purposes.
How do I calculate what I owe?
The regulations give self-insured plans a choice to use any of three alternative methods to count the average number of covered lives under the plan:
- First, a sponsor may determine the average number of lives covered 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 by adding the totals of lives covered on a specified 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 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”).
An additional counting rule applies if an employer that sponsors a self-insured major medical plan also sponsors a health FSA or HRA. Under this special rule, the arrangements can be treated as a single self-insured health plan if the arrangements have the same plan year for purposes of calculating the fee, so the plan sponsor need only count enrolled participants once, even if they are enrolled in multiple self-insured plans sponsored by the employer.
To learn more about calculating and paying PCORI fees, click here to visit the IRS website.
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