By way of back­ground, the Afford­able Care Act (ACA) cre­at­ed the Patient-Cen­tered Out­comes Research Insti­tute (PCORI) to study clin­i­cal effec­tive­ness and health out­comes. To finance the Institute’s work, a small annu­al fee—commonly called the PCORI fee—is charged on group health plans. Grand­fa­thered health plans are not exempt.

Most employ­ers do not have to take any action because employ­er-spon­sored health plans are com­mon­ly pro­vid­ed through group insur­ance con­tracts. For insured plans, the car­ri­er is respon­si­ble for cal­cu­lat­ing and pay­ing the PCORI fee and the employ­er has no addi­tion­al duties.

How­ev­er, employ­ers that spon­sor self-fund­ed group health plans are respon­si­ble for cal­cu­lat­ing, report­ing, and pay­ing this fee each year.

The PCORI fee applies for each plan year based on the plan year end date. The fee is an annu­al amount mul­ti­plied by the num­ber of plan participants.

$2.66 per year, per par­tic­i­pant, for plan years end­ing between Octo­ber 1, 2020 and Sep­tem­ber 30, 2021.
$2.79 per year, per par­tic­i­pant, for plan years end­ing between Octo­ber 1, 2021 and Sep­tem­ber 30, 2022.
Pay­ment is due by July 31st in the fol­low­ing cal­en­dar year in which the plan year ends. Because the due date in 2022 falls on Sun­day, you may file the return on the next busi­ness day. This year, pay­ment is due on Mon­day, August 1, 2022. Use IRS Form 720, Quar­ter­ly Fed­er­al Excise Tax Return.

Does the PCORI fee apply to all health plans?

The fee applies to all health plans and HRAs, exclud­ing the following:

Plans that pri­mar­i­ly pro­vide “except­ed ben­e­fits” (e.g., stand-alone den­tal and vision plans, most health flex­i­ble spend­ing accounts with lit­tle or no employ­er con­tri­bu­tions, and cer­tain sup­ple­men­tal or gap-type plans).
Plans that do not pro­vide sig­nif­i­cant ben­e­fits for med­ical care or treat­ment (e.g., employ­ee assis­tance, dis­ease man­age­ment, and well­ness programs).
Stop-loss insur­ance policies.
Health sav­ings accounts (HSAs).
The IRS pro­vides a help­ful  chart  indi­cat­ing the types of health plans that are, or are not, sub­ject to the PCORI fee.

Which quarter do self-funded employers report on by August 1st?

For the pur­pos­es of the 2022 PCORI oblig­a­tions, this would be the 2nd Quar­ter of 2022. So, when com­plet­ing Form 720 be sure to fill in the cir­cle for “2nd Quarter.”

Cau­tion! Before tak­ing any action, con­firm with your tax depart­ment or con­troller whether your orga­ni­za­tion files Form 720 for any pur­pos­es oth­er than the PCORI fee. For instance, some employ­ers use Form 720 to make quar­ter­ly pay­ments for envi­ron­men­tal tax­es, fuel tax­es, or oth­er excise tax­es. In that case, do not pre­pare Form 720 (or the pay­ment vouch­er), but instead give the PCORI fee infor­ma­tion to your organization’s tax pre­par­er to include with its sec­ond quar­ter­ly filing.

If I have multiple self-insured plans, does the fee apply to each one?

Yes. For instance, if you self-insure one med­ical plan for active employ­ees and anoth­er med­ical plan for retirees, you will need to cal­cu­late, report, and pay the fee for each plan. There is an excep­tion, though, for “mul­ti­ple self-insured arrange­ments” that are spon­sored by the same employ­er, cov­er the same par­tic­i­pants, and have the same plan year. For exam­ple, if you self-insure a med­ical plan with a self-insured pre­scrip­tion drug plan, you would pay the PCORI fee only once with respect to the com­bined plan.

What about hybrid plans such as level-funded or partially self-funded?

The terms “lev­el-fund­ed” or “par­tial­ly self-fund­ed” are not defined by law, so it can mean dif­fer­ent things to dif­fer­ent car­ri­ers, ven­dors, and employ­ers. In most cas­es, the terms are intend­ed to refer to a self-fund­ed group med­ical plan spon­sored by an employ­er who has assumed all finan­cial risk, oth­er than pro­tec­tion under stop-loss insur­ance. How­ev­er, this is not absolute. If your hybrid plan is in fact self-fund­ed plan, then the employ­er is respon­si­ble for the pay­ing the PCORI fee. If unsure, check with the state’s insur­ance com­mis­sion­er or legal counsel.

Does the fee apply to HRAs?

Yes. The PCORI fee applies to HRAs, which are self-insured health plans, although the fee is waived in some cas­es. If you self-insure anoth­er plan, such as a major med­ical or high deductible plan, and the HRA is mere­ly a com­po­nent of that plan, you do not have to pay the PCORI fee sep­a­rate­ly for the HRA. In oth­er words, when the HRA is inte­grat­ed with anoth­er self-insured plan, you only pay the fee once for the com­bined plan.

On the oth­er hand, if the HRA stands alone, or if the HRA is inte­grat­ed with an insured plan, you are respon­si­ble for pay­ing the fee for the HRA.

What about QSEHRAs? Does the fee apply?

Yes. A Qual­i­fied Small Employ­er Health Reim­burse­ment Arrange­ment (QSEHRA) is spe­cial type of tax-advan­taged arrange­ment that allows small employ­ers to reim­burse cer­tain health costs for their work­ers. Although a QSEHRA is not the same as an HRA, and the rules apply­ing to each type are very dif­fer­ent, a QSEHRA is a self-insured health plan for pur­pos­es of the PCORI fee. The IRS pro­vides guid­ance con­firm­ing that small employ­ers that offer QSEHRAs must cal­cu­late, report, and pay the PCORI fee.

What about ICHRAs and EBHRAs? Does the fee apply?

An Indi­vid­ual Cov­er­age Health Reim­burse­ment Arrange­ment (ICHRA) is a new type of tax-advan­taged arrange­ment, first offered in 2020, that allows employ­ers to reim­burse cer­tain health costs for their work­ers. The IRS has not pro­vid­ed spe­cif­ic guid­ance regard­ing ICHRAs and the PCORI fee, but it appears the fee applies since an ICHRA is a self-insured health plan.

An Except­ed Ben­e­fits Health Reim­burse­ment Arrange­ment (EBHRA) also is a self-insured health plan, but it is lim­it­ed to “except­ed ben­e­fits,” such as den­tal and vision care costs. So, the PCORI fee does not apply to EBHRAs.

Can I use ERISA plan assets or employee contributions to pay the fee?

No. The PCORI fee is an employ­er expense and not a plan expense, so you can­not use ERISA plan assets or employ­ee con­tri­bu­tions to pay the fee. (An excep­tion is allowed for cer­tain mul­ti­em­ploy­er plans (e.g., union trusts) sub­ject to col­lec­tive bar­gain­ing.) Since the fee is paid by the employ­er as a busi­ness expense, it is tax deductible.

How do I calculate the fee for a self-funded plan?

Mul­ti­ply $2.66 or $2.79 (depend­ing on the spe­cif­ic date the plan year end­ed in 2021) times the aver­age num­ber of lives cov­ered dur­ing the plan year. “Cov­ered lives” are all par­tic­i­pants, includ­ing employ­ees, depen­dents, retirees, and COBRA enrollees.

You may use any one of the fol­low­ing count­ing meth­ods to deter­mine the aver­age num­ber of lives:

  1. Aver­age Count Method: Count the num­ber of lives cov­ered on each day of the plan year, then divide by the num­ber of days in the plan year.
  2. Snap­shot Method: Count the num­ber of lives cov­ered on the same day each quar­ter, then divide by the num­ber of quar­ters (e.g., four). Or count the lives cov­ered on the first of each month, then divide by the num­ber of months (e.g., 12). This method also allows the option — called the “snap­shot fac­tor method” — of count­ing each pri­ma­ry enrollee (e.g., employ­ee) with sin­gle cov­er­age as “1” and count­ing each pri­ma­ry enrollee with fam­i­ly cov­er­age as “2.35.”
  3. Form 5500 Method: Add togeth­er the “begin­ning of plan year” and “end of plan year” par­tic­i­pant counts report­ed on the Form 5500 for the plan year. There is no need to count depen­dents using this method since the IRS assumes the sum of the begin­ning and end­ing of year counts is close enough to the total num­ber of cov­ered lives. If the plan is employ­ee-only with­out depen­dent cov­er­age, divide the sum by 2. (If Form 5500 for the plan year end­ing in 2021 is not filed by August 1, 2022, you can­not use this count­ing method.)
    Note: For an HRA, QSEHRA or ICHRA, count only the num­ber of pri­ma­ry par­tic­i­pants (employ­ees) and dis­re­gard any dependents.
How do I report and pay the fee for a self-funded plan?

Use Form 720, Quar­ter­ly Excise Tax Return, to report and pay the annu­al PCORI fee. Report all infor­ma­tion for self-insured plan(s) with plan year end­ing dates in 2021 on the same Form 720. Do not sub­mit more than one Form 720 for the same peri­od with the same Employ­er Iden­ti­fi­ca­tion Num­ber (EIN), unless you are fil­ing an amend­ed return.

The IRS pro­vides Instruc­tions for Form 720. Here is a quick sum­ma­ry of the items for PCORI:

  • Fill in the employ­er infor­ma­tion at the top of the form.
  • In Part II, com­plete line 133© and/or line 133(d), as applic­a­ble, depend­ing on the plan year end­ing date(s). If you are report­ing mul­ti­ple plans on the same line, com­bine the information.
  • In Part II, com­plete line 2 (total).
  • In Part III, com­plete lines 3 and 10.
  • Sign and date Form 720 where indicated.
  • If pay­ing by check or mon­ey order, also com­plete the pay­ment vouch­er (Form 720‑V) pro­vid­ed on the last page of Form 720.  Refer to the Instruc­tions for mail­ing information.
Summary

If you self-insure one or more health plans or spon­sor an HRA, you may be respon­si­ble for cal­cu­lat­ing, report­ing, and pay­ing annu­al PCORI fees. The fee is based on the aver­age num­ber of lives cov­ered dur­ing the health plan year. The IRS offers a choice of dif­fer­ent count­ing meth­ods to cal­cu­late the plan’s aver­age cov­ered lives. Once you have deter­mined the count, the process for report­ing and pay­ing the fee using Form 720 is fair­ly sim­ple. For plan years end­ing in 2021, the dead­line to file Form 720 and make your pay­ment is August 1, 2022.

By Erin DeBartelo

Orig­i­nal­ly post­ed on Min­er­al