What is PCORI? When, Why and How Much?
PCORI = Patient-Centered Outcomes Research Trust Fund Fee (IRC 4375, 4376 and 4377):
What: The PCORI Trust Fund fee is a fee on plan sponsors and issuers of health insurance individual and group policies. The fee is designed to create a funding for the Patient-Centered Outcomes Research Institute, which is tasked with researching health plans and making informed health decisions by advancing the quality and relevance of evidence-based medicine.
Who: Any fully insured employer with an HRA (Health Reimbursement Account) plan or non-excepted FSA (Flexible Spending Account) plan will need to pay the fee directly to the IRS for any employees participating in the offered HRA or FSA. For fully insured employers who do not offer HRA (Health Reimbursement Account) plans, their issuer, or carrier, are responsible for filing and paying the PCORI fee to the IRS on your behalf. The fee is included in your monthly premium. Self-funded employers must complete IRS Form 720 (see attached) and pay the PCORI fee directly to the IRS. Additionally, if you offer accident / health coverage or major medical insurance, even if under multiple plans, you are subject to the fee. Retiree-only health or major medical coverage is also subject to the PCORI fee. The fee also applies to COBRA coverage. Dental benefits, vision benefits, or HSA (Health Savings Account) plans are not affected by this requirement.
When: The PCORI fee applies to specified health insurance policies with policy years ending after Sept. 30, 2012, and before Oct.1, 2019, and applicable self-insured health plans with plan years ending after Sept. 30, 2012, and before Oct. 1, 2019. The PCORI fee is due to the IRS by July 31st, annually.
How much: The fee is equal to the average number of lives covered during the policy year or plan year multiplied by the applicable dollar amount for that specific year. The amount of the PCORI fee is adjusted annually to reflect inflation in National Health Expenditures, as determined by the Secretary of Health and Human Services. For plan years ending on or after 10/01/2015 and before 10/01/ 2016, the fee of $2.17 per employee is due July 31, 2016 to the IRS.
Calculating the Average Number of Lives: The PCORI Fee is based on the average number of covered lives (employees, spouses and dependents) during the plan year. Only those residing in the U.S. must be counted. If the address on file for the primary covered subscriber is outside the U.S., you may presume that the spouse and dependents also reside outside the U.S. Self-insured plan sponsors may use any of the following methods to calculate their covered lives subject to the PCORI Fee:
- Actual Count Method: Calculate the sum of the covered lives for each day of the plan year and divide the sum by the number of days in the plan year.
- Snapshot Method (Factor or Count Methods): Add the total number of covered lives on one selected date in each quarter of the plan year, or an equal number of dates for each quarter, and divide the total covered lives by the number of dates on which a count was made. To count covered lives on a designated date, use either the snapshot factor method or the snapshot count method.
- Snapshot Factor Method: The number of covered lives is equal to the sum of the number of primary plan participants with self-only coverage on that date, plus the number of primary participants with other than self-only coverage (e.g., participant plus spouse or family coverage) multiplied by 2.35. (This is the method for those not wishing to count dependents separately.)
- Snapshot Count Method: The number of covered lives is the actual number of covered lives (primary participants and all covered dependents) on the designated date.
- Form 5500 Method: Use the formula that includes the number of participants actually reported on the Form 5500 for the plan year.
Plan sponsors must use only one method in each year, but are not required to use the same method from year to year.
Generally, all individuals who are covered during the policy or plan year must be included in computing the average number of lives covered for that year. Thus, for example, an applicable self-insured health plan must count an employee and his one dependent child as two separate covered lives. The exception to this is for both health reimbursement arrangement (HRA) and flexible spending arrangement (FSA).
When a plan sponsor has multiple plans, FSAs and HRAs will fall under one of the below three categories for paying these fees:
- Stand-alone HRA or FSA.
- If the plan sponsor has no other medical healthcare plan with the HRA, then the fee will be paid by the plan sponsor on the average number of covered lives under the HRA. HRA or FSA with an insured medical plan.
- If the plan sponsor has other medical healthcare plans and that coverage is fully insured, covered lives that were already counted with the medical healthcare plan will need to be counted and paid again for the FSA or HRA plan. The insured carrier will pay the fees for the medical healthcare plan and the plan sponsor will pay the fees for the FSA or HRA plan.
HRA or FSA with a self-funded medical plan. If the plan sponsor has other medical healthcare plans that are self-funded and on the same plan year as the FSA or HRA, then any covered life that was already counted for the medical healthcare plan will not need to be counted and paid again for the FSA or HRA plan. If the plan sponsor has other medical healthcare plans that are self-funded and NOT on the same plan year as the FSA or HRA, then any covered life that was already counted for the medical healthcare plan will need to be counted and paid again for the FSA or HRA plan.
The IRS allows several different methods for determining the average number of covered lives. You may want to consult your tax professional to discuss which method is best for your organization. For more information on the PCORI fee, please go to http://www.irs.gov/uac/Newsroom/Patient-Centered-Outcomes-Research-Institute-Fee
The information and materials herein are provided for topical general reference purposes only and are not intended to constitute legal, tax or other advice. Opinions on any specific matters and are not intended to replace the advice of a qualified attorney, tax consultant or plan provider. Federal and state laws change frequently and, as such, there is no guarantee as to the accuracy or completeness of the information featured herein. In accordance with IRS Circular 230, this communication is not intended or written to be used, and cannot be used as or considered a ‘covered opinion’ or other written tax advice and should not be relied upon for any purpose other than its intended purpose.
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