“How-To” File your PCORI Fee Report
Patient-Centered Outcomes Research Institute (PCORI) Fees Apply To Employers Who Sponsor HRAs (And Some FSAs)
Background:
Health Care Reform created a new nonprofit corporation, the Patient-Centered Outcomes Research Institute (PCORI), to support clinical effectiveness research. The Institute will be funded in part by PCORI fees paid by certain health insurance issuers and sponsors of applicable self-insured health plans.
In our Health Reform Compliance Roundup article issued last July, NEO alerted clients about PCORI fees that apply to self-funded HRAs and certain FSAs that include employer contributions. The IRS issued final regulations in January 2013 that clarify how the PCORI fees should be calculated and paid. Although the regs address the requirements for both health insurers and employer-sponsored self funded plans, this bulletin focuses on the requirements for self-insured plans.
Plans Subject to Fees that Employers Must Pay
The insurer has to pay the fee for insured group health plans and individual health insurance policies. The plan sponsor (generally, the employer) has to pay the PCORI fee for self-insured group health plans.
- HRAs are self-insured health plans, and thus subject to PCORI fees. Even if the HRA is “integrated” with the insured group Health Plan, a separate PCORI fee must be paid on the HRA by the employer.
- Most FSAs are “excepted benefits” and are not subject to PCORI fees. However, if there is an employer FSA contribution that exceeds the greater of $500 or twice the employee’s salary reduction, then the FSA loses its “excepted” status and will be subject to PCORI fees.
PCORI Fees in General
The fees apply to plan years ending on or after October 1, 2012 and before October 1, 2019 (for seven full plan years). For plan years ending prior to October 1, 2013, the fee is $1.00 multiplied by the average number of covered employees; for later plan years it is $2.00. For plan years ending on or after October 1, 2014, the fee rate is subject to cost-of-living increases.
For most insurers and self-insured health plan sponsors, the first payment of the fee will be due July 31, 2013 (for 2012 calendar year plans).
Calculating the “Average Number of Lives Covered”
Special rules for counting lives apply to HRAs and FSAs. If the HRA or FSA is the only self-insured coverage provided by the employer, then the employer may treat each participant’s FSA or HRA as covering a single life (dependent lives do not have to be counted as they do in a fully insured or self-insured major medical plans).
An employer may use any method they choose, and change count methods each year.
- Actual Count Method: The sum of lives covered for each day of the plan year, divided by the number of days in the plan year.
- Snapshot Method: In general, the sum of the total of lives covered on a specified date of each quarter of the plan year divided by four.
- Form 5500 Method: The number of participants that is reported on the Form 5500, as long as the 5500 was filed by the due date of paying the PCORI fee (the number of participants covered on the HRA plan on the first day and last day of the Plan year, divided by two).
Special relief for first year of PCORI filing: For the first year of filing, the Final regs have allowed employers to use “any reasonable method” to determine counts.
Getting your Counts from NEO
You may run reports from your employer portal to calculate the number of lives. We recommend using the “YTD Summary From” report and choosing your dates. NEO can also help you calculate the number of lives that you must report – just reach out to your customer service representative to request the number of lives on your plan.
Payment of PCORI Fees
The PCOR fee is reported and paid annually on IRS Form 720 (Quarterly Federal Exercise Tax Return Form) and will be due by July 31 of the year following the calendar year in which the applicable plan year ended. Although most Form 720 Excise taxes are reported quarterly, the employer is only required to report and pay the PCORI fee once a year by July 31. Plan sponsors with calendar-year plans must remit the PCORI fees applicable for the 2012 plan year by July 31, 2013.
The employer must file and pay the PCORI fees for their plan. The Regulations indicate that the reporting and payment of PCORI fees cannot be delegated to a third party.
If you have any questions regarding the fees please contact your customer service representative at 330-864-0690.
Additional PCORI References
- IRS Form 720 (revised January 2013)
- Instructions for IRS Form 720 – See note below*
- Final regulations on PCORI fees issued on December 6, 2012.
- Notice 2011-55 – Original PCORI guidance
