Patient-Centered Outcomes Research Institute (PCORI) Fees Apply To Employers Who Sponsor HRAs (And Some FSAs)
If you are an employer who sponsors a plan that reimburses or pays health expenses of your employee (a Health Reimbursement Arrangement, aka HRA) then we are talking to you!
The Affordable Care Act (ACA) created a number of new fees and taxes for health insurers and sponsors of self-insured health plans. One of the new fees funds the Patient-Centered Outcomes Research Institute (PCORI), to support clinical effectiveness research. PCORI fees apply to plan years ending on or after October 1, 2012 and before October 1, 2019 (for seven full plan years).
The insurance carrier must file and pay the PCORI fee for insured group health plans and individual health insurance policies. This bulletin focuses on the requirements for self-insured health plans, such as an HRA.
Plans Subject to Fees that Employers Must Pay
The plan sponsor (generally, the employer) has to file and pay the PCORI fee for self-insured group health plans.
- HRAs are self-insured health plans, and thus subject to PCOR fees. Even if the HRA is provided only to the employee enrolled in 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 PCOR 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 PCOR fees.
The PCORI fee for Plan Years ending on or after October 1, 2014 (so, any 2014 calendar Plan Year) is $2.08 per covered life. (The fee will change each year, subject to cost-of-living increases.)
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 coving a single life (dependent lives do not have to be counted as they do in an fully insured or self-insured major medical plans).
The IRS provides three options for counting the average number of covered lives under the plan. 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).
PCORI Filing is Due to IRS by July 31st following the end of the prior Plan Year
The PCORI 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.
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 (such as NEO).
How-To: Filing the Form 720
Though Form 720 is used for quarterly excise taxes, filers who are using Form 720 it just to remit the annual PCORI fee due July 31 should only file once and complete only the header (employer info), line 133, and the Payment Voucher .
- Enter covered lives subject to the $2.08 fee for the 2014 plan or policy year in Part II of Form 720, line 133(b), under “Applicable self-insured health plans” to calculate the amount owed. Enter the average number of lives in column (a), and the $2.08 fee in column (c). See example below.
Helpful Hint: On the Payment Voucher, be sure to indicate “2nd Quarter” to avoid triggering the hassle of getting and correcting a tardy filing notice from the IRS.
If you have any questions regarding the fees please contact your customer service representative at 330-864-0690.
Additional PCORI References
Link to IRS Form 720
Link to IRS Form 720 Instructions
Final regulations on PCORI fees issued on December 6, 2012.