It’s that time of year again for PCORI fees to be paid. As you may already know, the Affordable Care Act established the Patient-Centered Outcomes Research Institute (PCORI). The purpose of PCORI is to promote research efforts that will help Americans make better informed health decisions. To fund this effort, employers with certain self-insured plans are required to pay a PCORI fee on July 31 every year.
The IRS will collect the fee from the insurer, or in the case of self-funded plans, the plan sponsor, in the same way many other excise taxes are collected. The fee is paid annually using Form 720, the Quarterly Federal Excise Tax Return. Fully insured medical plans will require the insurance carrier to submit the Form 720 and pay the fee. The PCORI fee is due by July 31, 2017.
The US Department of Labor has indicated that the fee should not be paid from plan assets, but should be paid by the plan sponsor, from general assets. The IRS has indicated the fee is, however, a tax-deductible business expense for employers with self-funded plans.
The fee is calculated utilizing one of several options:
• Actual Count Method: Count the covered lives on each day of the plan year and average the result
• Snapshot Count Method : Determine the number of covered lives on the same day (plus or minus three days) of each quarter or month and average the result.
• Snapshot Factor Method: Determine the number of covered employees/retirees/COBRA participants on the same day (plus or minus three days) of each quarter or month who have self-only coverage and the number who have other than self-only coverage. Multiply the number of participants with other than self only coverage by 2.35 to approximate the number of covered dependents (rather than actually counting them) and add that to the number of participants with self-only coverage. Average the result.
• Form 5500 Method: Determine the number of participants at the beginning and end of the plan year as reported on the Form 5500. If dependents are covered, add the participant count for the start and end of the plan year. The Form 5500 must be filed by July 31, to use this option.
For plan years that end on or after October 1, 2015 and before October 1, 2016, the indexed fee is $2.17 per covered life. For plan years that end on or after October 1, 2016, and before October 1, 2017, the indexed fee is $2.26. Please note that for health Flexible Spending Accounts and Health Reimbursement Accounts, covered dependents are not counted for purposes of the PCORI Fee, only employees/retirees/COBRA participants are considered covered lives.
For more information about the PCORI fee, please visit the IRS’ FAQ, Form 720, and Form 720 Instructions. Should you have any questions about the PCORI fee or other benefits related questions, please do not hesitate to contact us.