Patient-Centered Outcomes Research Institute Fee

Originally posted by irs.gov.

The Affordable Care Act imposes a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans to help fund the Patient-Centered Outcomes Research Institute. The fee, required to be reported only once a year on the second quarter Form 720 and paid by its due date, July 31, is based on the average number of lives covered under the policy or plan.

The fee applies to policy or plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019. The Patient-Centered Outcomes Research Institute fee is filed using Form 720, Quarterly Federal Excise Tax Return. Although Form 720 is a quarterly return, for PCORI, Form 720 is filed annually only, by July 31.

Please refer to the following chart for the filing due date and applicable rate depending upon the month a specified health insurance policy or an applicable self-insured health plan ends.

Specified Health Insurance Policies and Applicable Self-Insured Health Plans
The fee is imposed on an issuer of a specified health insurance policy and a plan sponsor of an applicable self-insured health plan. For more information on whether a type of insurance coverage or arrangement is subject to the fee, see this chart.

Calculating the Fee
Specified Health Insurance Policies

For issuers of specified health insurance policies, the fee for a policy year ending before Oct. 1, 2013, is $1, multiplied by the average number of lives covered under the policy for that policy year. Generally, issuers of specified health insurance policies must use one of the following four alternative methods to determine the average number of lives covered under a policy for the policy year.

  1. Actual Count Method: For policy years that end on or after Oct. 1, 2012, issuers using the actual count method may begin counting lives covered under a policy as May 14, 2012, rather than the first day of the policy year, and divide by the appropriate number of days remaining in the policy year.
  2. Snapshot Method: For policy years that end on or after Oct. 1, 2013, but began before May 14, 2012, issuers using the snapshot method may use counts from the quarters beginning on or after May 14, 2012, to determine the average number of lives covered under the policy.
  3. Member Months Method and 4. State Form Method: The member months data and the data reported on state forms are based on the calendar year. To adjust for 2012, issuers will use a pro rata approach for calculating the average number of lives covered using the member months method or the state form method for 2012. For example, the issuers using the member months number for 2012 will divide the member months number by 12 and multiply the resulting number by one quarter to arrive at the average number of lives covered for October through December 2012.

For more information on these methods to determine the average number of lives covered under a policy for the policy year, please see the final regulations (PDF).

Applicable Self-Insured Health Plans

For plan sponsors of applicable self-insured health plans, the fee for a plan year ending before Oct. 1, 2013, is $1, multiplied by the average number of lives covered under the plan for that plan year. Generally, plan sponsors of applicable self-insured health plans must use one of the following three alternative methods to determine the average number of lives covered under a plan for the plan year.

  1. Actual Count Method: A plan sponsor may determine the average number of lives covered under a plan for a plan year by adding the totals of lives covered for each day of the play year and dividing that total by the total number of days in the plan year.
  2. Snapshot Method: A plan sponsor may determine the average number of lives covered under an applicable self-insured health plan for a plan year based on the total number of lives covered on one date (or more dates if an equal number of dates is used in each quarter) during the first, second or third month of each quarter, and dividing that total by the number of dates on which a count was made.
  3. Form 5500 Method: An eligible plan sponsor may determine the average number of lives covered under a plan for a plan year based on the number of participants reported on the Form 5500, Annual Return/Report of Employee Benefit Plan, or the Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan.

However, for plan years beginning before July 11, 2012, and ending on or after Oct. 1, 2012, plan sponsors may determine the average number of lives covered under the plan for the plan year using any reasonable method.

For more information on these methods to determine the average number of lives covered under applicable self-insured health plans for the plan year, please see the final regulations (PDF).

Reporting and Paying the Fee
File the second quarter Form 720 annually to report and pay the fee no later than July 31 of the calendar year immediately following the last day of the policy year or plan year to which the fee applies. Issuers and plan sponsors who are required to pay the fee but are not required to report any other liabilities on a Form 720 will be required to file a Form 720 only once a year. They will not be required to file a Form 720 for the first, third or fourth quarters of the year. Deposits are not required for this fee, so issuers and plans sponsors are not required to pay the fee using EFTPS.

Please see the instructions for Form 720 on how to fill out the form and calculate the fee. If for any reason you need to make corrections after filing your annual Form 720 for PCORI, write “Amended PCORI” at the top of the second filing.

The payment, if paid through the Electronic Federal Tax Payment System, should be applied to the second quarter (in EFTPS, select Q2 for the Quarter under Tax Period on the "Business Tax Payment" page).

Related Items:

  • The IRS and the Treasury Department have issued final regulations on this fee.
  • Notice 2014-56 establishes the applicable dollar amount for policy and plan years ending after Sept. 30, 2014, and before Oct. 1, 2015.
  • For information on the fee, see our questions and answers and chart summary.
  • Form 720, Quarterly Federal Excise Tax Return, was revised to provide for the reporting and payment of the patient-centered outcomes research fee.

Upcoming PCORI Fee Due July 31

Source: http://www.irs.gov

The Affordable Care Act imposes a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans to help fund the Patient-Centered Outcomes Research Institute. The fee, required to be reported only once a year on the second quarter Form 720 and paid by its due date, July 31, is based on the average number of lives covered under the policy or plan.

The fee applies to policy or plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019. The Patient-Centered Outcomes Research Institute fee is filed using Form 720, Quarterly Federal Excise Tax Return. Although Form 720 is a quarterly return, for PCORI, Form 720 is filed annually only, by July 31.

Specified Health Insurance Policies and Applicable Self-Insured Health Plans

The fee is imposed on an issuer of a specified health insurance policy and a plan sponsor of an applicable self-insured health plan. For more information on whether a type of insurance coverage or arrangement is subject to the fee, see this chart.

Calculating the Fee

Specified Health Insurance Policies

For issuers of specified health insurance policies, the fee for a policy year ending before Oct. 1, 2013, is $1, multiplied by the average number of lives covered under the policy for that policy year. Generally, issuers of specified health insurance policies must use one of the following four alternative methods to determine the average number of lives covered under a policy for the policy year.

  1. Actual Count Method: For policy years that end on or after Oct. 1, 2012, issuers using the actual count method may begin counting lives covered under a policy as May 14, 2012, rather than the first day of the policy year, and divide by the appropriate number of days remaining in the policy year.
  2. Snapshot Method: For policy years that end on or after Oct. 1, 2013, but began before May 14, 2012, issuers using the snapshot method may use counts from the quarters beginning on or after May 14, 2012, to determine the average number of lives covered under the policy.
  3. Member Months Method and 4. State Form Method: The member months data and the data reported on state forms are based on the calendar year. To adjust for 2012, issuers will use a pro rata approach for calculating the average number of lives covered using the member months method or the state form method for 2012. For example, the issuers using the member months number for 2012 will divide the member months number by 12 and multiply the resulting number by one quarter to arrive at the average number of lives covered for October through December 2012.

For more information on these methods to determine the average number of lives covered under a policy for the policy year, please see the final regulations (PDF).

Applicable Self-Insured Health Plans

For plan sponsors of applicable self-insured health plans, the fee for a plan year ending before Oct. 1, 2013, is $1, multiplied by the average number of lives covered under the plan for that plan year. Generally, plan sponsors of applicable self-insured health plans must use one of the following three alternative methods to determine the average number of lives covered under a plan for the plan year.

  1. Actual Count Method: A plan sponsor may determine the average number of lives covered under a plan for a plan year by adding the totals of lives covered for each day of the play year and dividing that total by the total number of days in the plan year.
  2. Snapshot Method: A plan sponsor may determine the average number of lives covered under an applicable self-insured health plan for a plan year based on the total number of lives covered on one date (or more dates if an equal number of dates is used in each quarter) during the first, second or third month of each quarter, and dividing that total by the number of dates on which a count was made.
  3. Form 5500 Method: An eligible plan sponsor may determine the average number of lives covered under a plan for a plan year based on the number of participants reported on the Form 5500, Annual Return/Report of Employee Benefit Plan, or the Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan.

However, for plan years beginning before July 11, 2012, and ending on or after Oct. 1, 2012, plan sponsors may determine the average number of lives covered under the plan for the plan year using any reasonable method.

For more information on these methods to determine the average number of lives covered under applicable self-insured health plans for the plan year, please see the final regulations (PDF).

Reporting and Paying the Fee

File the second quarter Form 720 annually to report and pay the fee no later than July 31 of the calendar year immediately following the last day of the policy year or plan year to which the fee applies. Issuers and plan sponsors who are required to pay the fee but are not required to report any other liabilities on a Form 720 will be required to file a Form 720 only once a year. They will not be required to file a Form 720 for the first, third or fourth quarters of the year. Deposits are not required for this fee, so issuers and plans sponsors are not required to pay the fee using EFTPS.

Please see the instructions for Form 720 on how to fill out the form and calculate the fee. If for any reason you need to make corrections after filing your annual Form 720 for PCORI, write “Amended PCORI” at the top of the second filing.

The payment, if paid through the Electronic Federal Tax Payment System, should be applied to the second quarter (in EFTPS, select Q2 for the Quarter under Tax Period on the "Business Tax Payment" page).

 


IRS Issues Final Rule on Comparative Evidence PCORI Fees

This content was originally published by Stephen Miller on the SHRM website. 

Fees, due by July 31, will be charged to health care insurers, and to sponsors of self-insured health plans, to fund the new Patient-Centered Outcomes Research Institute (PCORI)

Revised Form 720 Issued

For sponsors of self-insured health plans, the IRS posted an updated Form 720 and accompanying instructions on its website. The new Form 720 (with a revision date of April 2013), along with related payment voucher Form 720-V, should be used to report and remit the "PCORI fee" to the IRS. Although the Form 720 is designed for quarterly payments of certain excise taxes, the PCORI fee is paid only annually.

The fee, as described below, is required to be reported annually on the second quarter Form 720 and paid by its due date, July 31, with the first fee payment due July 31, 2013.

PCORI Fee Is Deductible

In another development, the PCORI fee is an “ordinary and necessary business expense paid or incurred in carrying on a trade or business” and as result is tax-deductible, the IRS said in a May 31, 2013, memorandum.

The U.S. Internal Revenue Service issued a final rule on Fees on Health Insurance Policies and Self-Insured Plans for the Patient-Centered Outcomes Research Trust Fund, published in the Federal Register on Dec. 6, 2012.

The Patient Protection and Affordable Care Act (PPACA) establishes the nonprofit Patient-Centered Outcomes Research Institute (PCORI) to promote the use of evidence-based medicine by disseminating comparative clinical effectiveness research findings.

To fund the PCORI, the PPACA imposes a fee on health insurers and employer who sponsor self-insured health plans, for each policy or plan year ending on or after Oct. 1, 2012, and before Oct. 1, 2019, with the first fee payment due July 31, 2013. Subsequently, the PCORI fee will be due no later than July 31 following the last day of the plan year.

The fee will be $1 per plan participant for the first plan year ending after Sept. 30, 2012, and $2 per participant in succeeding years. For policy or plan years ending on or after Oct. 1, 2014, the fee will be increased based on increases in the projected per capita amount of national health expenditures.

Scope of Fees Clarified

Among other points, the final rule clarifies that the fee imposed on an employer sponsoring a self-insured health plan is based on the average number of lives covered under the plan during the plan year.

If an employer sponsors more than one self-insured arrangement, those arrangements may be treated as a single plan for purposes of calculating the PCORI fee, but only if the plans have the same plan year.

Several commentators had requested that the final regulations provide that PCORI fees do not apply multiple times if accident and health coverage is provided to one individual through more than one policy or self-insured arrangement (for example, where an individual is covered by a fully insured major medical insurance policy and a self-insured prescription arrangement).

The final rule does not adopt the requested change. For example, for an employee covered by both a group insurance policy and a health reimbursement arrangement (HRA), the group insurance policy falls within the definition of a specified health insurance policy and the fee applies to the insurer, while the HRA falls within the definition of an applicable self-insured health plan, so that the fee applies to the plan sponsor.

The final rule also applies PCORI fees to policies and plans that provide accident and health coverage to retirees, including retiree-only policies and plans. And it states explicitly that COBRA and other types of continuation coverage must be taken into account in determining PCORI fees, unless the arrangement is otherwise excluded.

However, in response to comments, the final rule permits a self-insured health plan that provides accident and health coverage through fully insured options and self-insured options to determine the fee imposed by disregarding the lives that are covered solely under the fully insured options.

What Plans Are Subject to the Comparative Evidence "PCORI" Fee?

Plans subject to the fee:

 Medical plans.

 Prescription drug plans.

 Self-insured dental or vision plans, if provided without a separate election or premium charge.

 Health reimbursement arrangements (HRAs).

 Retiree-only health plans (even though some are exempt from other PPACA mandates).

Plans exempt from the fee:

 Separately insured dental or vision plans.

 Self-insured dental or vision plans, if subject to separate coverage elections and employee contributions.

 Expatriate coverage provided primarily for employees who work and reside outside of the U.S.

 Health savings accounts (HSAs).

 Most flexible spending accounts (FSAs).

 Employee assistance programs (EAPs), wellness programs and disease management programs that do not provide "significant benefits in the nature of medical care or treatment."

Source: Pinnacle Financial Group, Patient-Centered Outcomes Research Fee Overview

Reconsidering Plan Designs

According to an alert from law firm Leonard, Street and Deinard, employers who sponsor multiple self-funded plans with the same plan year ends can aggregate those plans and pay the fee once on overlapping lives. However, because the fee is imposed on the plan sponsor and not on the plan itself, the employer must pay the fee outside the plan, meaning that plan assets cannot be used to pay the fee.

The law firm's alert also notes that:

Employers with self-funded high deductible health plans that are paired with self-funded HRAs can aggregate those plans and pay the fee once with respect to an individual covered by both the high deductible health plan and the HRA. In contrast, an employer that sponsors a fully insured high deductible health plan paired with a self-funded HRA will essentially be required to pay the fee twice on the same lives. The IRS concluded that because separate statutes impose the fee on plan sponsors of self-funded plans and insurance companies issuing fully insured policies, the IRS is unable to permit employers with both types of plans to combine them for purposes of determining the number of covered lives that they have.

Employers who sponsor self-funded HRAs with fully insured medical plans may wish to consider other plan designs to avoid this fee, such as self-funding the high deductible health plan or moving to a plan design that uses HSAs instead of HRAs. Alternatively, if there are relatively few people covered under the HRA and if the HRA has been an effective plan design, employers may simply decide to continue offering the plan and pay the additional fee.