PCORI fees due August 1 for self-insured health plans

Late last year, the IRS increased the fees that insurers or sponsors of self-insured health plans pay each year to fund the Federal Trust Fund for the Institute for Focused Outcomes Research. patient (PCORI). The new fee is $2.79 per covered person, with other fees described below.

Fees are usually due July 31 each year, but for 2022 fees are due August 1, as July 31 falls on a Sunday this year.

Fees apply to health insurance plans from the previous calendar year. According to the IRS
Notice 2022-04the annual fee adjustments are as follows:

  • For plan years ending on or after October 1, 2021 and before October 1, 2022 (including calendar year plans), fees are
    $2.79 per person covered by the plan — employees and dependents — up from $2.66 a year earlier.

  • For plan years that ended on or after October 1, 2020, and before October 1, 2021, the fees are
    $2.66 per person, compared to $2.54 the previous year.

However, according to a
March 4, 2022, update Q&A from the IRS on PCORI fees:

  • After September 20, 2021 and before October 1, 2022, the applicable dollar amount is $2.79.

  • After September 30, 2020 and before October 1, 2021, the applicable dollar amount is $2.66.

Self-insured employers pay the annual PCORI fee directly to the IRS. For fully insured employers, the cost is paid by the insurance provider, although the cost may be factored into premium increases.

Fees are reported and paid annually with IRS submission
Form 720 (Quarterly Federal Excise Tax Return) and are due by July 31 of the year following the end of the plan year, unless that date falls on a weekend or federal holiday .

Fees apply until 2029

The Affordable Care Act created a fee to fund a Washington, DC-based institute that conducts research on the comparative effectiveness of medical treatments. The fee was originally intended to apply only to plans with terms ending after September 30, 2012 and before October 1, 2019. However, as part of the 2019 bipartisan budget law, the annual PCORI filing and fees were extended for another 10 days. years, until 2029.

“The PCORI fee is calculated using the average number of lives covered by the policy or plan and the applicable dollar amount for that policy year or plan year,” explained William Sweetnam, legislative and technical director of the Council of employers on flexible compensation in Washington. , DC “The applicable dollar amount was $2 when the fee was enacted as part of the Affordable Care Act, and this amount is increased annually based on increases in the projected per capita amount of national health care spending. .”

PCORI Fee Calculation

The IRS offers self-insured employers options for determining the average number of plan enrollees, which the IRS calls covered lives — employees, spouses, and dependents covered by the health insurance plan. According to the IRS,
plan sponsors can use one of the following methods to calculate the average number of lives covered by the plan:

  • The actual counting method. Plan sponsors add up the total lives covered for each day of the year, divided by the total number of days in the plan year.

  • The snapshot method. Sponsors add up the total number of insureds covered as of a date in each quarter of the plan year.

  • The snapshot factor method. Similar to the snapshot method, the number of lives covered on a given day can be determined by counting the actual number of lives covered that day or by treating those who have self-coverage only as one life and those who have coverage other than for themselves only. like 2.35 lives.

  • The Form 5500 method. Plan sponsors use a formula that includes the number of participants reported on Form 5500 for the plan year.

The IRS released
a chart showing the application of PCORI fees to common types of health coverage.

FSA, HRA and other benefits

In general, health Flexible Spending Accounts (FSAs) are considered
excepted services and therefore do not require payment of Form 720 and PCORI fees “unless the employer – not just the employee – makes contributions to it
that exceeds the lesser of $500 per year or a dollar-for-dollar equivalent of the employee’s contributionsaid Gary Kushner, president and CEO of Kushner & Company, an HR strategy and benefits consulting firm in Portage, Michigan. ” with the appropriate payment per registrant.

For health reimbursement arrangements (HRAs), employers should “look at the integrated group health plan first,” Kushner advised. “If the [health] is fully insured, the employer must file the 720” and pay the fee for each employee with an employer-sponsored HRA. The fee is paid per employee, and spouses and children covered by the fully insured health plan do not are not included in the fee calculation.

“If, however, the underlying group health plan is self-funded, then no separate 720 need be filed for the integrated HRA, but rather a deposit and fee for the self-funded group health plan is due,” Kushner noted. In this case, the fee is calculated based on the lives covered, not just the employees.

While the insurance company is responsible for paying the PCORI fee for the fully insured medical plan,”the employer is responsible for paying PCORI fees on the HRA“, wrote Karen Hooper, vice president and chief compliance officer at Newfront, an insurance and financial services company in San Francisco. “The IRS is essentially double-dipping in this scenario by imposing the PCORI fee on the same lives covered by both principal medical and the HRA. In recognition of this, the HRA PCORI fee paid by the employer is determined by counting only one life per employee participating in the plan (not dependents).”

The PCORI fee
does not apply to Health Savings Account (HSA) participantsbecause HSAs are individual accounts, not group health plans.

The fee also “does not apply to dental and vision coverage which are excluded benefits (whether through a stand-alone insurance policy or by meeting the ‘non-full’ test for self-care coverage). insured),” Hooper explained, and “virtually all dental and vision plans are excluded benefits.”

Missed payment deadlines

“An employer who neglects to report and pay PCORI fees when due must immediately, upon becoming aware of the oversight, file Form 720 and pay the fee (or file a corrected Form 720 to report and pay the fee, if the employer timely filed the form for other reasons, but failed to report and pay the PCORI fee),” advised Ethan McWilliams, senior compliance analyst at Lockton, a benefits broker and service company based in Kansas City, Missouri.

Employers in this situation should be sure to use the form for the correct tax year.

“The IRS can collect interest and penalties for late filing and payment, but it has the authority to waive penalties for cause,” he noted.

Future charges

The dollar amount of the PCORI fee is adjusted annually to reflect national health care spending inflation, as determined by the Secretary of Health and Human Services (HHS).

“Because of the fact that [HHS] did not publish updated national health expenditure tables for 2021,
this year’s fees are based on the projections set out in the 2020 tables“, according to a client alert from the law firm Fraser Trebilcock in Lansing, Michigan. “As such, plans should pay particular attention to next year’s fee changes,” which could reflect several years of care inflation. health.

[Need help with legal questions? Check out the new

SHRM LegalNetwork.]

Comments are closed.