Quick Summary
- For plan years ending in 2016, plan sponsors of self-funded health plans must pay a PCORI fee by July 31, 2017. Note that level-funded plans are self-funded, as are most if not all MECs (“minimum essential coverage” plans).
- Use the IRS Form 720 to make the payment.
- The amount varies depending on when (in 2016) the plan year ended.
- $2.26 per “covered life” for plan years ending on or after October 1, 2016 and before December 31, 2016.
- $2.17 per “covered life” for plan years ending on or after October 1, 2015 and before October 1, 2016.
PCORI stands for the Patient-Centered Outcomes Research Institute, which will compile and distribute comparative clinical effectiveness research findings. The fees paid by plans are used to fund the Institute.
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.
What Types of Plans are Subject to the PCORI Fee?
Plan sponsors of self insured medical plans are responsible to report and pay the fee, for plans that provide health or accident benefits primarily to individuals living in the U.S. Examples of plans subject to the fee include:
- Major medical – including retiree-only and COBRA continuation coverage
- “Level-funded” plans
- Health Reimbursement Accounts (HRAs)*
- MEC plans that provide more than just excepted benefits
* However, for individuals who are covered under both an HRA and a major medical group health plan with the same plan year, the HRA does not have to pay the PCORI fee for those individuals for whom the group health plan pays it. This applies whether the major medical plan is insured or self-funded.
Insured medical plans are subject to the PCORI fee, but the carrier pays it, not the plan sponsor.
What Types of Plans are NOT Subject to the PCORI Fee?
- “Excepted” benefits such as stand-alone dental or vision plans, and most health FSAs
- 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
- Employee Assistance Programs (EAPs), disease management and wellness programs (as long as they do not provide significant benefits in the nature of medical care or treatment)
Reporting the PCORI Fee
Sponsors of self-funded plans must file the second quarter Form 720 annually (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. See Note below regarding number of covered lives.
Two things that differ depending on the plan year end date:
- The due date. For some 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 a plan year ending on or before July 31, the PCORI fee will not be due until July 31 of the following calendar year. Example: for a plan year ending March 31, 2017, the PCORI fee is not due until July 31, 20
- The rate. The applicable rate increases each year and varies depending on when the plan year end. For example, the fee for a plan year that ended September 30, 2016, is $2.17 per enrollee, but the fee for a plan year that ended December 31, 2016, is $2.26 per enrollee. Both are due by July 31, 2017. This is clearly shown on the Form 720.
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.
Paying the PCORI Fee
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 are made using the Electronic Federal Tax Payment System (EFTPS). See Form 720 Instructions.
Corrections to a previously-filed Form 720 filings may be made using Form 720X. (See Q/A 16 on the IRS PCORI Fee webpage cited above.)
How to Determine the Average Number of Covered Lives
A plan may use any of the three 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.
> Practical Tip: If enrolled employees with family 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 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.
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
As noted previously, this method may result in the lowest PCORI fees if enrolled employees with family coverage often cover more than two family members.
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.
Record-keeping Requirements
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.