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Employers Required to Pay the PCORI Fee Under the ACA Must Make Final Payment This Year Group health plan sponsors are looking at the end of an era as they plan to pay one of the last fees created by the Affordable Care Act (ACA) to fund the Patient-Centered Outcomes Research Institute. The PCORI Fee, as it’s known, comes due on July 31, 2019, for the final time.

The PCORI Fee applies to certain issuers of health insurance policies and employers sponsoring self-funded health plans. Employers that are required to pay the fee need to take steps to be sure they file and pay it on time.

We’ll look into exactly what the PCORI Fee covers, who must pay it, payment calculations and notes on the final reporting in the rest of the article below. If you have additional questions, contact us to learn more.

Which Health Insurance Plans Are Subject to the PCORI Fee?

For its final year, the PCORI Fee still applies to a set of “specified health insurance policies” and “applicable self-insured health plans.” This group includes many typical self-funded plans as well as insurance health plans and health maintenance organization contracts. Health flexible spending accounts (health FSAs) and health reimbursement arrangements (HRAs) that are not qualified as “excepted benefits” will also need to pay the PCORI fee.

The PCORI Fee does not apply to the following policies and arrangements:

  • Plans and policies that provide “excepted benefits,” as defined under the Health Insurance Portability and Accountability Act, such as stand-alone vision plans, dental plans and most health flexible spending accounts.
  • HRAs integrated with a self-funded health plan.
  • HRAs that only reimburse for limited-scope dental and vision or long-term care coverage that are not integrated with group health plans may also be considered excepted.
  • Plans and policies designed primarily to cover employees working and residing outside the U.S.
  • Stop-loss and indemnity reinsurance policies.
  • Employee assistance programs, disease management programs or wellness programs, if these programs do not provide significant benefits in the nature of medical care or treatment.
  • Specific exempt governmental programs, such as Medicare, Medicaid, CHIP and TRICARE.

 

Who Is Responsible for Paying the PCORI Fee?

Carriers pay the fees for fully insured plans while the plan sponsor — read as the employer — must pay the fee and file the returns for self-funded plans. If a plan combines a mix of self-funded and insured benefits, the rules are merged, and it is best to speak with a professional about your specific plan and obligation.
For example, the rules are combined if an employer maintains both a self-funded HRA and an insured health plan. Here, the PCORI fee for the lives covered under the life insurance policy is paid directly by the insurance company. At the same time, the PCORI fee for the lives covered under the self-funded portion is paid by the plan sponsor.

If a single employee is covered under both portions of a plan, the insurer and plan sponsor will each have to pay the PCORI fee for that employee. However, lives covered only under the insured portion are not counted in determining the PCORI fee for the self-funded portion.

Note: A third party may prepare the submission, but they cannot report or provide payment of the PCORI fee for self-funded plans. So, self-insured employers are solely responsible for submitting the fee and accompanying paperwork directly to the IRS. Health plan sponsors should use Form 720 to pay the PCORI fee in their second-quarter filing. While Form 720 is a quarterly return form, the PCORI portion is only filed annually. The last section in this post will explain a little more.

 

When Is the PCORI Fee Due?

For 2019, the final annual PCORI fee is due by July 31, 2019. This covers plans ending from Oct. 1, 2018, through Sept. 30, 2019.

 

Is There a PCORI Fee Due in 2020?

There are no fees assessed for plans ending on or after October 1, 2019.

So, the fee no longer applies and there will be no payments due in 2020.

 

How Do You Calculate the PCORI Fee?

The PCORI Fee is set by the IRS each year. It provides a flat rate that must be multiplied by the average number of lives covered during the plan or policy year.

The applicable dollar amount that must be used to calculate the fee for policy years and plan years that end on or after October 1, 2018, and before October 1, 2019, is $2.45.

The final fee increased $0.06 per life from the 2018 fee based on the percentage increase of the projected per capita amount of National Health Expenditures provided by HHS. The IRS explains that process in Notice 2018-85.

 

Number of Covered Lives

Generally, all individuals covered during the policy year or plan year — including the covered employee and the employee’s covered dependents — must be counted. Alternative counting methods are available to determine the number of covered lives, including the “actual count method,” the “snapshot method,” and the “Form 5500 method.” A method, once elected, must be used consistently for the duration of the year. 

For your final filing, all counting methodologies are available to you. While the IRS page is recommended to start, more information on each method is available in the final published regulations.
 

Special Rule for Non-Excepted Health FSAs and HRAs

For HRA and health FSA plans, only the covered employees are counted. So, you would not include any spouses or dependents.
 
If another self-funded health plan subject to the PCORI fee is maintained in addition to the health FSA or HRA, then this special rule applies only to participants in the health FSA or HRA who do not participate in the other plan.
 

How Do You Report and Pay the PCORI Fee?

Plan sponsors must file IRS Form 720 by July 31 to report and pay the PCORI fee.

Payment is due on the same date the Form 720 is due. As noted above, Form 720 is a quarterly form, but PCORI should only be covered on your second quarter filing.

Some have noted that the ACA and related regulations do not include an express penalty for failing to report or pay the PCORI fee. However, failure to pay will likely incur penalties under U.S. Code § 6651 related to “Failure to File.” This penalty could be assessed as 5% of the unpaid PCORI fee, plus an additional 5% for each month that the fee goes unpaid — it is capped at 25%.

Penalties can be waived if the cause for not filing is “due to reasonable cause and not willful neglect,” but this explanation can be provided only after a penalty notice is received from the IRS.

If you have not filed for the past couple of years, but should have, seek appropriate counsel for correcting those filings and paying the applicable fees. If you have additional questions about the PCORI fee, check out the IRS’s Q&A.
 

Why Is the PCORI Fee Ending? Is It Replaced by Something?

The Patient-Centered Outcomes Research Institute (PCORI) is funded through the Patient-Centered Outcomes Research Trust Fund that was created under the Affordable Care Act. The Trust Fund gets its income from the PCORI fee assessed on private insurance and self-insured health plans as well as from the Department of Treasury’s general fund and transfers from the Centers for Medicare and Medicaid trust funds.

The PCORI Fee was mandated in the ACA and had predetermined dates covering plans with terms ending after Sept. 30, 2012, and before Oct. 1, 2019. The institute, established under the law, will continue to operate and engage in research.

Presently, there are no plans to reintroduce the PCORI fee or other related fees on insurance plans.

This article was originally published in July 2015 and was substantially updated in April 2019. Joe Lazzarotti, a benefits attorney and practice group leader at Jackson Lewis P.C., contributed to the original article.
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