Employers who sponsor self-insured medical plans, including HRAs, must report and pay the ACA Patient-Centered Outcomes Research Institute (PCORI) fees no later than July 31 of the calendar year following the last day of the applicable plan year. (Health insurance carriers/insurers will pay the fee directly in the case of fully-insured plans.)
PCORI fees apply to plan years ending after Sept 30, 2012 and before Oct 1, 2029. The fee is paid using quarterly excise tax Form 720. If any corrections need to be made for prior years, use Form 720X.
The PCORI fee generally applies to all group health plans, but not to excepted benefits. In an unusual episode of clarity, the IRS published a rather helpful chart that describes the different types of plans subject to the fee. In addition, the IRS has also posted a PCORI fee-related Q&A.
Calculating the Average Covered Lives
Self-funded plans may use one of three methods to determine the average covered lives. Plan sponsors must stick with one method for the entire plan year, but are allowed to change from year to year.
- Actual Count Method – Calculate the lives covered for each day of the plan year and divide by the number of days in the plan year.
- Snapshot Method – Add the lives covered on a date during the first, second, or third month in each quarter, or an equal number of dates for each quarter, and divide the total by the number of dates on which a count was made. There are two methods for counting family members:
- Count the actual lives covered on the designated date; or
- Count the participants with self-only coverage on the designated date, plus the participants with coverage other than self-only coverage on the designated date multiplied by 2.35.
- Form 5500 Method – Use the participants actually reported on the Form 5500 for the plan year (this method may be used only if the Form 5500 is filed no later than the due date for the fee imposed for that plan year). Total number of lives is determined by adding the participant counts at the beginning and the end of the plan year. Note—if a plan offers only single coverage, the final result is divided by 2.
Special rules for counting covered lives:
Multiple Self-Funded Plans – If one plan sponsor maintains more than one self-funded health plan with the same plan year, the arrangements can be treated as a single plan for purposes of the fee.Health Reimbursement Accounts (HRAs) – An employer who sponsors an HRA with a fully-insured medical plan is required to pay the fee with respect to each employee-participant—that is, employers are not required to count dependents or beneficiaries.
Flexible Spending Arrangements (FSAs) – In rare circumstances PCORI fees can be owed on a FSA. This is generally only the case when there are employer contributions to employees' FSAs, or when the FSA and the company's medical plan(s) have different plan years. (If you have a FSA, get confirmation from legal counsel that the PCORI fees do or do not apply.)
IRS Form 720
Form 720 is a quarterly excise tax return for an odd assortment of federal taxes and fees. Even though it's a quarterly return, plan sponsors paying the PCORI fee will only file the second quarter return (so check the second quarter box at the top of the first page). Don't spend much time perusing the form—unless you're doing it just for fun—because most of Form 720 has nothing to do whatsoever with the Affordable Care Act. In fact, only Part II, item 133 is for the PCORI fee, just above "sport fishing equipment."