Plan sponsors of self-funded plans, including some Health Reimbursement Arrangements (HRA) and Flexible Spending Accounts (FSA), are reminded that the Affordable Care Act’s (ACA) Patient Centered Outcomes Research Institute Fee (PCORI) is due for calendar year plans by July 31st. The Internal Revenue Service (IRS) has issued Notice 2023-70 increasing the Patient-Centered Outcomes Research Institute (PCORI) fee amount for plan years ending on or after Oct. 1, 2023, and before Oct. 1, 2024. The updated PCORI fee amount is $3.22 multiplied by the average number of lives covered under the plan.
For plan years that ended on or after Oct. 1, 2022, and before Oct. 1, 2023, the PCORI fee amount is $3.00 multiplied by the average number of lives covered under the plan.
Applicability of PCORI Fee
The PCORI fee was created by the Affordable Care Act (ACA) and first applied for plan or policy years ending on or after Oct. 1, 2012. The fee is imposed on health insurance issuers and self-insured plan sponsors to fund comparative effectiveness research. The PCORI fee was originally scheduled to expire in 2019. However, a federal spending bill extended the PCORI fee for an additional 10 years through the 2029 plan year.
Who must Report?
Self-funded and level-funded plans must report and remit the fee for their major medical plan(s). Including:
- Retiree-only plans
- COBRA participants
- Health Reimbursement Arrangements NOT integrated with a self-funded health plan
- Minimum Essential Coverage (MEC) plans providing more than excepted benefits
Calculating, Reporting & Remitting the Fee
The PCORI fee is calculated using the average number of lives covered under an applicable self-insured health plan. Generally, plan sponsors of applicable self-insured health plans must use one of the following three methods to determine the average number of lives covered under a plan for the plan year.
- Actual Count Method
- Snapshot Method
- Form 5500 Method
For additional assistance on understanding and calculating the PCORI rate, see the Leavitt Group article. Leavitt Group has available a PCORI Fee Calculator to assist in determining these calculations.
PCORI fees are reported and paid annually on IRS Form 720 (Quarterly Federal Excise Tax Return). These fees are due each year by July 31 of the year following the last day of the plan year. For plan years ending in 2023, the PCORI fee is due by July 31, 2024. Employers with self-insured health plans should have reported and paid PCORI fees for 2022 by July 31, 2023.
What if the fee is late or was not remitted?
Late fees apply for late filing and/or payment, but the IRS may waive these if the plan sponsor has reasonable cause and the failure was not due to willful neglect. However, the IRS will not waive fees if the failure was due to inadvertent error. See Part II (Pages 8-9) of the IRS instructions. Corrections to a previously-filed Form 720 filing may be made using Form 720X. (See Q/A 16 on the IRS PCORI Fee webpage cited above.)
Action May be Required
Self-funded plan sponsors are obligated to make this payment, not their carrier or Third Party Administrator (TPA). Consult your legal and tax professional for calculations and to ensure compliance with all applicable law for your specific circumstances. For additional details on calculating covered lives and remitting payment, see the Leavitt Group article.
For plan years ending on or after Oct. 1, 2023, and before Oct. 1,2024, the PCORI fee amount increases to $3.22 per covered life. Need help calculating your PCORI Fee? Contact your Leavitt Group representative for access to our PCORI Fee Calculator.
This Legal Update is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. Republished with permission from Zywave. Some content by Leavitt Group.