What’s Old is New Again – Annual PCORI Fee is Due July 31st

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Compliance Consultant
+1 806 281 7643
June 16, 2020

Time to File and Submit Payment for the PCORI Fee

The Affordable Care Act (ACA) created the Patient Centered Outcome Research Initiative (PCORI) to evaluate and compare health outcomes. The annual PCORI fee partially funds this initiative. The fee applies to all health plans, including church and government plans, which provide coverage to employees. The PCORI fee was scheduled to end in 2019 (2020 for many non-calendar year plans). In an unexpected move, the 2020 federal spending bill extended the PCORI fee to 2029 (2030 for many non-calendar year plans). The IRS instructions are here.

How Much?

The indexed fee schedule is below.

For Plan Years…

Fee per Covered Life

Ending on or after October 1, 2018 and before October 1, 2019

$2.45

Ending on or after October 1, 2019 and before October 1, 2020

$2.54

Who and When?

  1. If a group health plan is fully insured, the insurance carrier is responsible for reporting and paying the PCORI fee. Insurance carriers typically pass the fee along to covered employers through higher premiums.

  2. The employer as plan sponsor is responsible for reporting and paying the PCORI fee for a self- insured group health plan. A third party administrator or other vendor may assist with the calculation, but the plan sponsor must file the IRS Form 720 and pay the applicable fee. If multiple employers participate in the plan, each must file separately unless the plan document designates one employer as the plan sponsor.

  3. IRS Form 720 and the PCORI fee are due by July 31, 2020. Although the PCORI fee was originally supposed to sunset in 2019 (2020 for many non-calendar year plans), the program was extended for another ten years by the 2020 Spending Bill passed in December 2019 (please see Repeal, Repeat, Remand – Ho Ho Hum?).

Which Plans Are Subject to the PCORI Fee?

Most types of group health plans are subject to the PCORI fee, including group health plans that are “grandfathered” under the ACA as well as retiree-only coverage. It is actually a little easier to describe which plans are excluded.

 

Plans Excluded from the PCORI Fee

Plans considered “excepted” benefits under HIPAA, including:

  • Most health care flexible spending arrangements (HCFSAs) so long as: (i) the employer also offers traditional medical coverage to HCFSA participants; and (ii) the maximum annual HCFSA reimbursement is limited to the greater of the participant’s contribution plus $500 or twice the participant’s contribution1
  • Dental- or vision-only coverage (or HCFSAs and health reimbursement arrangements (HRAs) limited to reimbursements for dental and vision expenses)
  • Employee assistance programs (EAPs), disease management, wellness plans, etc. if they do not provide significant medical benefits

 

Expatriate insurance plans if the plan primarily covers employees working and residing outside the United States

Stop-loss or indemnity reinsurance policies

Non-group health coverage (e.g., life, disability, AD&D)

How Do You Calculate the PCORI Fee?

The fee depends upon the number of covered lives under a plan (i.e., employees, retirees, COBRA participants, and covered spouses and dependents). There are several options for calculating the fee, and the IRS is providing some additional transition relief for the filing due July 31, 2020, addressed in our Transition Relief note at the end of this section.

The goal is to find the method resulting in the lowest fee owed. The same method must be used throughout a reporting year, but an employer may change methods from year to year.

  1. Actual Count Method. Count the covered lives on each day of the plan year and average the result.
  2. Snapshot Count Method. Determine the number of covered lives on the same day (plus or minus 3 days) of each quarter or month, and average the result.
  3. Snapshot Factor Method. Using the same day (plus or minus 3 days) of each quarter or month, multiply the number of employees, retirees and COBRA participants who have elected a coverage tier other than self-only coverage by 2.35 (rather than actually counting dependents) and add that to the number of employees, retirees and COBRA participants with self-only coverage. Average the result.
  4. Form 5500 Method. Determine the number of participants at the beginning and end of the plan year as reported on Form 5500.
    • If dependents are covered, add the participant counts for the beginning and end of the plan year together.
    • If dependents are not covered, add the participant counts for the beginning and end of the plan year together and divide by two.
    • The Form 5500 must actually be filed by July 31st for this option to be available.

If there are multiple self-insured plans with the same plan year (such as a self-insured medical plan with an HRA), only one fee applies per covered life. In other words, there is no need to double-count the participants for overlapping coverage. Separate PCORI fees apply for self-insured benefits with different plan years.

If the plan sponsor owes the fee for a HCFSA or HRA because it is offered on a standalone basis or because it is integrated with fully insured coverage (such as a fully insured medical plan), the fee may be calculated by counting only covered employees. In other words, spouses and dependents do not count.

Transition Relief: The IRS is providing limited relief for plan sponsors who believed 2019 was their final reporting year prior to PCORI’s revival. For July 31, 2020 reporting only, the IRS will allow these plan sponsors to use any “reasonable method for calculating the number of covered lives.”

It is not clear what other methods the IRS would consider reasonable. Could a plan sponsor rely on a snapshot as of a single point during the plan year rather than averaging? For example, is using the number of covered lives on the last day of the plan year reasonable? Plan sponsors do not indicate the counting method used on IRS Form 720, so there is little reason for the IRS to question a report unless the number of covered lives greatly differs from the prior year. We recommend employers rely on one of the traditional counting method unless it is administratively difficult to do so.

Please note that this transition relief is not available for plans that will report in 2020 using the $2.45 per covered life fee.

How Do We Report and Pay?

Plan sponsors report the PCORI fee annually on IRS Form 720 by July 31st. Form 720 itself is a quarterly return, but employers who only need Form 720 for PCORI reporting purposes only file it once per year at the end of the second quarter.

Note: Government, church and not-for-profit employers are subject to the PCORI fee and required to file Form 720 if they sponsor a self-insured group health plan.

Only certain portions of Form 720 need to be completed for PCORI purposes.

  1. Identifying information at the beginning of the form:


  2. Part II, line 133 (self-insured plans complete the “Applicable self-insured plans” line; the “Specified health insurance policies” line is completed by insurance carriers for fully insured policies):

  3. Part III, lines 3 and 10 and the signature section:

  4. Payment can be made electronically using the Electronic Federal Tax Payment System or by check or money order using the 720-V payment voucher found near the end of the Form 720 and mailed to:

    Department of the Treasury Internal Revenue Service Ogden, UT 84201-0009

The fee is tax-deductible.


[1] This effectively means an employer cannot contribute more than $500 toward an HCFSA if the employee elects $0 in order for the HCFSA to qualify as an excepted benefit. A 1:1 matching contribution would qualify as an excepted benefit HCFSA. Employer contributions do not count toward the employee HCFSA annual contribution limit.

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