Background

The ACA includes several fees that insurers and employers are required to pay 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 paying the fees is somewhat confusing. The bottom line for self-funded plans is that payment is due by July 31st of the year following the last day of the policy or plan year. The instructions for Form 720 and the form itself can be found at http://www.irs.gov/uac/Form-720-Quarterly-Federal-Excise-Tax-Return.

PCORI Fee Adjusted
The below chart will assist employers in understanding what their applicable fee is based on plan year and the fees currently released.


PCORI fees are paid by the carriers for fully insured plans, whereas it's 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 – Actual Count Method, Snapshot Method, and 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 “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, it's 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.

If the FSA is funded solely through employee contributions, it's likely an excepted benefit. This will encompass virtually all FSAs, however, please contact your Assurance representative if you have any questions regarding your FSA.

If an HRA is a stand along HRA, the fee is paid based on the average number of lives covered by the HRA, but counting only one life per participant.

If the HRA is integrated and is fully-insured coverage, the fee must be paid by the plan sponsor on the average number of lives covered by the HRA. This is in addition to the fee paid by the insured plan. The HRA’s covered lives will be determined using the one life per participant rule.

If the HRA is integrated with self-insured coverage, each person covered by both plans is only counted once and one fee is paid. If the HRA covers anyone not also covered on the self-insured group health plan, the fee is paid for those individuals as well, using the one life per participant rule.

Due Date
The deadline for plan years due for July 31, 2018 is rapidly approaching. Employers who had a self-funded plan during any of the applicable plan years listed in the chart above with a July 31, 2018 due date need to file a Form 720 to pay their PCORI fee.

For more information, please contact your Assurance representative.

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.