By Danielle Capilla
Chief Com­pli­ance Offi­cer at Unit­ed Ben­e­fit Advisors

MoneyPPACA cre­at­ed a pri­vate non-prof­it cor­po­ra­tion called the Patient-Cen­tered Out­comes Research Insti­tute (PCORI). The Insti­tute’s job is to research the com­par­a­tive effec­tive­ness of dif­fer­ent types of treat­ment for cer­tain dis­eases, and to share its find­ings with the pub­lic and the med­ical com­mu­ni­ty. The goal is to improve qual­i­ty of treat­ment and reduce unnec­es­sary spend­ing. The Patient-Cen­tered Out­comes Research Insti­tute (PCORI) fee is to sup­port this research and applies from 2012 to 2019. The fee is due based on plan/policy years end­ing on or after Octo­ber 1, 2012, and before Octo­ber 1, 2019. The fee is due by July 31 of the year fol­low­ing the cal­en­dar year in which the plan/policy year end­ed. This means that the first fee was due July 31, 2013, for those on Novem­ber, Decem­ber, and cal­en­dar year plan years. The first fee is not due until July 31, 2014, for those with plan years that start Jan­u­ary 2 through Octo­ber 1.

The fee will be cal­cu­lat­ed and paid by the insur­er for ful­ly insured plans (although the fee is usu­al­ly being passed on to the plan). The plan spon­sor of self-fund­ed plans (which is usu­al­ly the employ­er) must file and pay the fee for those plans. (If the plan uses a third par­ty admin­is­tra­tor, the TPA may assist with the cal­cu­la­tion, but the plan spon­sor must file the form.) Health reim­burse­ment arrange­ments (HRAs) are con­sid­ered self-fund­ed plans, so employ­ers will need to file for those plans, even if the insur­er is fil­ing for the relat­ed ful­ly insured med­ical plan. If mul­ti­ple employ­ers par­tic­i­pate in the plan, each must file sep­a­rate­ly unless the plan doc­u­ment des­ig­nates one of them as the plan sponsor.

The fee is based on cov­ered lives, so employ­ees, retirees and COBRA par­tic­i­pants and their cov­ered depen­dent spous­es and chil­dren are all count­ed. How­ev­er, only the employ­ee, retiree or COBRA par­tic­i­pant needs to be count­ed for an HRA or a health flex­i­ble spend­ing account (health FSA) – depen­dents cov­ered by these accounts can be excluded.

The first year the fee is due, the fee is $1 per cov­ered life dur­ing the plan or pol­i­cy year. For the sec­ond year, the fee is $2 per cov­ered life dur­ing the year. For the third through sev­enth years, the fee will be $2, adjust­ed for med­ical infla­tion, per cov­ered life. For plan years that end on or after Octo­ber 1, 2014, and before Octo­ber 1, 2015, the indexed fee is $2.08. The IRS announced the 2014–2015 fee in Sep­tem­ber 2014; this time frame is when the indus­try should expect the fee announce­ment for plan years from Octo­ber 2015 through Sep­tem­ber 2016.

The fee applies to all types of employ­ers, includ­ing pri­vate, gov­ern­ment, not-for-prof­it and church employ­ers. Grand­fa­thered plans must pay the fee.

The fee is due on “group health cov­er­age,” which includes all med­ical plans. Retiree-only plans must pay this fee. “Group health cov­er­age” does not include:

  • Stand-alone den­tal and vision cov­er­age (stand-alone means these ben­e­fits are elect­ed sep­a­rate­ly from med­ical or are under sep­a­rate policies)
    Life insurance
  • Short- and long-term dis­abil­i­ty and acci­dent insurance
  • Long-term care
  • Health FSAs to which only employ­ee con­tri­bu­tions, or min­i­mal employ­er con­tri­bu­tions are made, as long as the employ­ee is eli­gi­ble for med­ical cov­er­age, too
  • Health sav­ings accounts
  • Hos­pi­tal indem­ni­ty or spec­i­fied ill­ness coverage
  • Employ­ee assis­tance and well­ness pro­grams that do not pro­vide sig­nif­i­cant med­ical care or treatment
  • Stop-loss cov­er­age

Sev­er­al options are avail­able for cal­cu­lat­ing the fee:

  • Actu­al count method – The plan counts its cov­ered lives on each day of the plan year, and aver­ages the result.
  • Snap­shot method – The plan deter­mines the num­ber of cov­ered lives on the same day (plus or minus three days) of each quar­ter or month, and aver­ages the result. (This method also allows the plan to count employ­ees and retirees with self-only cov­er­age sep­a­rate­ly from those with depen­dent cov­er­age, and then mul­ti­ply the count of employ­ees and retirees who have depen­dent cov­er­age by 2.35 to approx­i­mate the num­ber of cov­ered depen­dents, rather than actu­al­ly count­ing them.)
  • Form 5500 method – The plan deter­mines the num­ber of par­tic­i­pants at the begin­ning and end of the plan year as report­ed on Form 5500. If depen­dents are cov­ered, the plan adds the par­tic­i­pant count for the start and the end of the plan year to get the total reportable lives. If depen­dents are not cov­ered, the plan adds the par­tic­i­pant count for the start and the end of the plan year and aver­ages the result (this method can­not be used by insur­ers). Form 5500 must be filed by July 31 to use this option.

The same method must be used through­out a report­ing year, but it may be changed from year to year.

If there are mul­ti­ple self-fund­ed plans (e.g., self-fund­ed med­ical and HRA) with the same plan year, only one fee would apply to a cov­ered life. How­ev­er, if there are both ful­ly insured and self-fund­ed plans, a fee would apply to each plan unless the employ­ee is only cov­ered under one type of plan – the insur­er would pay the fee on the insured cov­er­age and the plan spon­sor would pay the fee on the HRA. For exam­ple, with a ful­ly insured med­ical plan and an inte­grat­ed self-fund­ed HRA, the insur­er would pay a fee on the employ­ees and depen­dents cov­ered under the ful­ly insured med­ical pol­i­cy and the employ­er would pay a fee on the employ­ees (but not the depen­dents) cov­ered under the HRA.

The plan spon­sor must report and pay the fee on IRS Form 720 each July 31. This will be an annu­al fil­ing, even though Form 720 is gen­er­al­ly filed quar­ter­ly. The plan spon­sor may file elec­tron­i­cal­ly or with paper.

For more infor­ma­tion, view UBA’s PPACA Advi­sor, “Fre­quent­ly Asked Ques­tions about the Patient-Cen­tered Outcomes/Comparative Effec­tive­ness (PCORI) Fee” which address­es 12 key aspects of this fee in detail.

Read More …