- For plan years ending in 2015, plan sponsors of self-funded health plans must pay a PCORI fee by August 1, 2016. (July 31 is a Sunday.) Note that level-funded plans are self-funded.
- Use the IRS Form 720 to make the payment.
- The amount varies depending on when the plan year ended.
- $2.17 per “covered life” per year for plan years ending on or after October 1, 2015 and before January 1, 2016.
- $2.08 per “covered life” per year for plan years ending on or after January 1, 2015 and before October 1, 2015.
Employers who sponsor insured health plans are not required to take any action to pay the PCORI fees; instead, health insurers will pay the fee and no doubt include the cost in insurance rates.
For additional details, see the IRS PCORI Fee webpage at https://www.irs.gov/uac/patient-centered-outcomes-research-trust-fund-fee-questions-and-answers.
Plan Sponsors of these Types of Plans should Report & Pay the Fee
Plan sponsors of self insured plans (including “level-funded” plans and Health Reimbursement Accounts (HRAs)) are responsible to report and pay the fee. However, no separate PCORI fee is due for individuals who are covered under both an H.R.A. and a self-insured group health plan with same plan year.
The following types of plans ARE subject to the PCORI fee:
Plans that provide health or accident benefits primarily to individuals living in the U.S., including plans that are insured, self-funded, PPOs, HMOs, retiree-only medical plans, COBRA continuation coverage, and HRAs that are bundled with insured group health plans.
The following types of plans are NOT subject to the PCORI fee:
- “Excepted” benefits such as stand-alone dental or vision plans;
- HRAs that are bundled with self-funded plans with the same plan year;
- H.S.A.s (but the underlying high deductible health plan would be subject to the fee); and
- most Health FSAs, Employee Assistance Programs (EAPs), disease management and wellness programs.
Reporting and Paying the PCORI Fee
Sponsors of self-funded plans must file the second quarter Form 720 annually (usually by July 31) to report and pay the fee. In Section II, line/section 133: report the average number of lives covered in column (a), apply the applicable rate (listed in column (b)), and enter the fee due in column (c). The form does not automatically calculate.
Two things that differ depending on the plan year end date:
- The due date. For non-calendar year plans the deadline will be later than for calendar year plans, because the due date is July 31 of the calendar year immediately following the last day of the policy year or plan year to which the fee applies. For example, the PCORI fee for a plan year ending March 31, 2016, is not due until July 31, 2017.
- The rate. The applicable rate increases each year and varies depending on when the plan year ended. For example, the fee for a plan year that ended September 30, 2015, is $2.08 per enrollee, but the fee for a plan year that ended October 31, 2015, is $2.17 per enrollee. Both are due by July 31, 2016 (August 1 since July 31 is a Sunday). This is clearly shown on the Form 720.
TPAs may prepare the Form 720, but the employer must file it and is liable for ensuring the correct amount is timely paid. Late fees that apply for late filing and/or payment may be waived if the plan sponsor has reasonable cause and the failure was not due to willful neglect. Fees may not be waived for inadvertent error. See Part II (Pages 8-9) of the IRS instructions.
The Form 720 may be filed with the IRS by U.S.mail, private delivery services, or electronically. Electronic filings would be by the Electronic Federal Tax Payment System (EFTPS). See Form 720 Instructions.
Note: The number of covered lives is based on the average number of enrollees for the plan or policy year, whether that is a full 12-month year or a short plan or policy year. Thus, if an employer offers an insured plan with a policy renewal date of January 1, but as of October 1 changes to a self-funded or level-funded plan, the insurer will pay the PCORI fee for the January 1 – September 1 policy year, and the plan sponsor will pay the PCORI fee for the plan year that begins October 1, whether that is a full or short plan year.
How to Determine the Average Number of Covered Lives
A plan may use any of the four counting methods listed below. Self-insured plans should receive information from the plan TPA on the average number of covered lives. Select the method that results in the lowest number. This applies for level-funded plans as well as traditional self-insured plans.
A plan may—but is not required to—use the same counting method for the reinsurance fee as for the PCORI fee. Some differences apply in operation (e.g., for the reinsurance fee, the annual enrollee count is determined based on the average number of enrollees during each January 1 – September 30th).
Practical Tip: If enrolled employees with other-than-self-only coverage often cover more than two family members, the employer will likely pay lower PCORI fees by using the Snapshot factor method explained below.
1) Actual count method
Add the number of covered lives for each day of the plan year and divide by that number of days (365, or less for or a short plan year). In practice, if you use this method you probably will be counting the average number of enrollees per month and dividing by 12, since most TPAs report numbers on a monthly basis, not a daily basis.
2) Snapshot methods
There are two types of snapshot methods, explained below. The general methodology is the same under each: add the total number of lives covered on one or more dates in each quarter, and divide by the total number of dates on which the count was made. A plan need not pick exactly the same date or dates in each quarter, but must use similar dates in subsequent quarters. Slightly different rules apply for the PCORI fee than for the reinsurance fee:
For the PCORI fee, each date used for the second, third and fourth quarters must be within three days of the date in that quarter that corresponds to the date used for the first quarter, and all dates used must fall within the same ERISA plan year. (For the reinsurance fee, the dates for the second and third quarters must fall within the same week of the quarter as the corresponding dates used in the first quarter. No fourth quarter count is used.)
2.A. Snapshot Count Method:
- The number of lives equals the actual number of lives covered on the designated date or dates, divided by the number of dates on which a count was made. This includes employees, spouses, other dependents, retirees and COBRA qualified beneficiaries.
2.B. Snapshot Factor Method: The number of lives equals:
- the sum of the number of employee participants with self-only coverage on the selected date(s), plus the number of employee participants with coverage other than self-only coverage on the same date(s),
- multiplied by 2.35
3) Form 5500 method
A calendar year plan can use the 5500 method only if the 5500 is filed no later than the July 31 PCORI fee due date. This means an employer cannot use this method for PCORI if it files for an extension to file the 5500 later than July 31.
- If the plan only provides self-only coverage: add the number of plan participants at the beginning and end of the plan year (as reported on lines 5 and 6(d) of the 5500), and divide by two.
- If the plan also offers coverage other than self-only: add the number of plan participants reported on lines 5 and 6(d) at the beginning and end of the plan year and do not divide by two.
The federal government may request documentation of how of the fees were calculated, so employers should keep records to show how they determined the number of covered lives and the fee amount to apply. The Form 720 instructions advise taxpayers to keep their returns and supporting documentation for at least four years from the date the tax return was due, or if later, the date it was paid or file.
For the transitional reinsurance fee, HHS requires plan sponsors to keep records of enrollee counts for ten years, so employers may want to apply the ten-year rule to PCORI fee documentation as well (since the enrollee count methods are so similar).