PCORI Fees due August 1

The Patient-Centered Outcomes Research Institute (PCORI) fees are one of the temporary fees established under the Affordable Care Act and levied on issuers of health insurance policies and plan sponsors of applicable self-insured group health plans. Insurance companies will pay the fee for fully-insured plans, while for self-insured plans, employers must calculate and pay the fee themselves.

1. 2016 Payment Deadline: August 1, 2016 (July 31 falls on a Sunday this year).
2. Basis of the Fee. The PCORI fee is a variable fee that is based on the average number of covered individuals (regardless of the number of Covered Lives) under an applicable health plan during the plan year. Covered Lives will include employees, spouses, dependents and COBRA participants.
   • For plan years that ended between January 1, 2015 and September 30, 2015, the fee is $2.08 per covered life.
   • For plan years that ended between October 1, 2015 and December 31, 2015, the fee is $2.17 per covered life.
3. Calculating the Fee. Plan sponsors of self-funded plans may choose among the following three options for determining the number of Covered Lives under their plan:
4. Actual Count Method. Plan sponsors calculate the sum of Covered Lives for each day of the plan year and then divide that sum by the number of days in the year.
5. Snapshot Method. Plan sponsors calculate the sum of the Covered Lives on one or more dates in each quarter of the plan year and then divide that number by the number of dates used. Under this method, the plan sponsor can count the number of covered employees and multiply that number by 2.35 to obtain the spouse and dependent count.
6. The 5500 Method. By adding the total number of employee lives on the first day of the plan year to the total number of employee lives on the last day of the plan year as reported on the Form 5500 for the plan and dividing by 2. The plan sponsor will multiply the resulting number by 2.35 to obtain the reportable covered spouse and dependent count. Plan sponsors may count one Covered Life for each employee covered by either an HRA or an FSA that is subject to the PCORI fee.
7. Form 720. Plan sponsors must report the PCORI fees on Form 720. Although Form 720 is a quarterly reporting form, plan sponsors who are required to pay the PCORI fee but are not required to report any other liabilities on the Form 720 will be required to file a Form 720 only once a year. Plan sponsors who are required to pay the PCORI fee as well as other liabilities on a Form 720 will use their second quarter Form 720 to report and pay the PCORI fee that is due July 31. Note that failure to designate properly “2nd Quarter” on the Form 720 Payment Voucher will result in the IRS’s software generating a “tardy filing notice”.

The Form 720 may be filed by mail, electronically or by private delivery services as described in the instructions to the Form.

5. Fee Must Be Paid by Employer. In the preamble to the PCORI regulation, the Department of Labor (DOL) states that because the PCORI fee is a tax assessed against the employer, the fee may not be paid out of plan assets (i.e. employee benefit trust). The IRS  indicated that health insurance issuers and employers may generally deduct the required PCORI fee as an ordinary and necessary business expense paid or incurred in carrying on a trade or business.

Details:

1. Excepted Benefit Exclusion. PCORI fees will not apply to plans that provide only Excepted Benefits. The Health Insurance Portability and Accountability Act (HIPAA) defines the term “Excepted Benefits” to include freestanding dental and vision plans, limited scope FSAs (HDHP: dental and vision only benefits), as well as expatriate plans, long-term care plans, stop loss coverage, most wellness plans, etc. However, to be an excepted self-funded dental or vision plan, the plan must provide that the participant be able to elect to receive or not to receive coverage for the benefits.
2. Flexible Spending Accounts (FSAs). Contributory health FSAs may be considered “Excepted Benefits” only if another group medical plan is available to the FSA-eligible participants and the FSA’s maximum benefit does not exceed two-times the participant’s salary reduction election. If it is greater, then the maximum amount cannot exceed $500 plus the amount of the participant’s pre-tax election. If the FSA meets these standards, then it will be considered an “Excepted Benefit” that will be excluded from the PCORI-fee requirements.
3. Non-Duplication. If an employer offers two self-funded plans (major medical plan and integrated HRA) that are subject to the PCORI fee and if both plans have the same plan year, the plan sponsor may treat the two plans as a single plan for the purposes of calculating the PCORI fee. Plan sponsors should base the fee on the number of Covered Lives in the plan with the greater number of Covered Lives. For example, if the employer offers a self-insured medical plan and a non-contributory health reimbursement account (HRA) covering out-of-pocket costs under the medical plan, and if both plans have the same plan year, the employer would only count the participants once. There are some exceptions:

• If the HRA had a different plan year from the medical plan, the employer must add the participant counts together.
• If the employer has a self-funded medical plan for one class (e.g. management) and another self-funded plan for another group (e.g. rank and file employees), the counts would be additive.
• If one of the plans is insured, and the other is not, the self-insured plan sponsor would be responsible for paying the fees on Covered Lives under the self-insured plan only; the insurer will pay the fees on the Covered Lives under the insured plan.

4. Multiple Employer (Non-Union) and Multi-Employer (Union) Self-Funded Employer Plans. The organization that maintains a multiple or multi-employer plan will be responsible for payment and reporting of the PCORI fee. If the multi-employer plan has plan assets (e.g. a VEBA), the joint board of trustees can pay the fee out of the plan assets. Multiple employer plans with plan assets (e.g. a VEBA) may also use plan assets to pay the fee as long as the sponsoring organization exists solely for the purpose of sponsoring the plan. If the sponsoring organization exists for other reasons, the organization cannot use plan assets to pay the fee. If the multiple employer plan has no plan assets or if it exists for other reasons, the sponsoring organization may collect the fees from each participating employer.

Alan Wang
Alan Wang is the President of UBF and serves as the lead consultant. He has delivered the UBF solution set throughout the world and is highly regarded for his areas of expertise. You can follow him on Twitter @UBFconsulting.