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. Insurers will pay the fee for insured plans, while plan sponsors must calculate and pay the fee themselves. This memorandum is intended to assist plan sponsors of self-insured plans with compliance.
1. 2016 Payment Deadline: July 31, 2016 (July 31 of the calendar year immediately following the last day of the applicable plan 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.
|The 2016 Fee|
|Plan Year||Self-Funded Plan’s Plan Year Begins on the First Day of the Following Month||Amount Per
|2014||February, March, April, May, June, July, August, September or October||$2.08|
|2014||November or December||$2.17|
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. 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 Plan Sponsor. In the preamble to the PCORI regulation, the Department of Labor (DOL) states that because the PCORI fee is a tax assessed against the plan sponsor, the fee may not be paid out of plan assets (i.e. employee benefit trust). The IRS issued an internal memorandum in 2013 indicating that health insurance issuers and plan sponsors may generally deduct the required PCORI fee as an ordinary and necessary business expense paid or incurred in carrying on a trade or business.
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:
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.
Copyright © 2016 Alfred B. Fowler, Attorney at Law · All Rights Reserved. Reprint with permission only. This Benefits Alert is published as an information source for our clients and colleagues. It is general in its nature and is no substitute for legal advice or opinion in any particular case.