Background

The ACA includes a number of fees that insurers and employers are required to pay in order to help support various aspects of healthcare reform. One of those fees, the Patient-Centered Outcomes Research Institute or PCORI fee, is a relatively minor fee, but is structured in a way as to cause some confusion about who it applies to, and when it is to be paid.

The PCORI fee is paid via IRS Form 720, the Quarterly Federal Excise Tax Return. Because Form 720 is filed on a quarterly basis, the timing for actually paying the fees is somewhat confusing. The bottom line for self-funded plans is that payment is due by July 31 of the year following the last day of the policy or plan year.

PCORI Fee Adjusted

The below chart will be able to assist employers in understanding what their applicable fee is based on plan year and the fees that have been released. 

PCORI fees are paid by the carriers for fully insured plans, whereas it is the responsibility of self-funded plans to file and pay the PCORI fee themselves utilizing Form 720.

Counting Participants

Both Insurers and self-funded Plan Sponsors have similar methods for counting the average number of lives covered by the plan for the reportable year. Here we outline the methods applicable to self-funded plan sponsors.

There are three ways to calculate the average number of covered lives – the Actual Count Method, the Snapshot Method, and the Form 5500 Method.

Actual Count Method

This is the most accurate method of calculating the fee but requires a very complete set of records. In this method the plan sponsor counts the number of lives covered on each day of the plan year, and divides that count by the number of days in the plan year.

Snapshot Method

Here, plan sponsors take a snapshot of each quarter of the plan year by picking a date in each quarter and looking at the number of covered lives on that date. The date chosen in each quarter must be within three days of the corresponding date in each of the other quarters (i.e. the 10th day of each quarter would be allowable.) There are two options for counting covered lives under the snapshot method – the “snapshot count method” and the “snapshot factor method.” In the snapshot count method, employers would count the number of actual covered lives on the selected date for each quarter, while under the snapshot factor method; the employer would count the number of participants with self-only coverage on the selected dates, plus the number of participants with coverage other than self-only on the selected dates multiplied by 2.35.

Once the counts for each quarter are determined, they are all added together and divided by four to determine the average number of covered lives for the year.

Form 5500 Method

Perhaps the easiest method of all is the Form 5500 Method. Here the employer uses the count of covered employees at the beginning and end of the plan year and adds them together. If the plan offers employee-only coverage, then the resulting number can be divided by two.

HRA/FSA Special Rule

For HRAs and those FSAs that are not excepted under the ACA, plan sponsors do not need to calculate the number of dependents and spouses covered by the plan; they can just count each employee participant as one life.

FSAs that are funded solely by employee salary reduction without contributions by the employer are excepted from the ACA. This will encompass virtually all FSAs, however please contact your Assurance representative if you have any questions regarding your FSA.

How To Pay the Fee

The IRS has recently released updated instructions for Form 720, the Quarterly Federal Excise Tax Return, which is the form used to pay the PCORI Fee. These instructions give self-funded employers the instructions needed to report and pay their applicable PCORI fees.

The instructions reiterate that plan sponsors who don’t otherwise file a form 720 are not required to file one in the first, third or fourth quarters of the year. Instead they only file the form in the second quarter to report and pay the fee.

The instructions for form 720 and the form itself can be found here: http://www.irs.gov/uac/Form-720,-Quarterly-Federal-Excise-Tax-Return

Information contained herein is not intended to constitute tax or legal advice and should not be used for purposes of evading or avoiding otherwise applicable regulatory responsibilities as issued by the federal or state government(s) and/or taxes owed under the Internal Revenue Code. You are encouraged to seek advice from your legal or tax advisor based on your circumstances.