The Affordable Care Act imposes a little-known new fee on certain employers and health insurance companies. The first payments are due on or before July 31, 2013.
The “PCORI” (Patient-Centered Outcomes Research Institute) fee may take some employers by surprise. While many organizations are focused on the healthcare law’s “employer mandate,” which was just delayed until 2015, they may have overlooked the PCORI fee.
The fee doesn’t amount to much financially, but it does add compliance and filing burdens — and comes with the usual penalties for failure to file and failure to pay taxes.
Background: Authorized by Congress as part of the healthcare law, PCORI performs medical research. Funding is provided, in part, by the new fee.
The idea behind the research (and the fees funding it) is that it will help patients, doctors, and others make better health choices, which will eventually lower healthcare costs.
The PCORI fee is imposed on:
1. Issuers of certain health insurance policies; and
2. Plan sponsors of self-insured health plans, including health reimbursement arrangements and health flexible spending arrangements.
Health insurance providers are responsible for the fee on their policies. In addition, individual employers and plan sponsors are responsible for the fee on their self-insured plans. The fee is imposed for plan years ending after September 30, 2012. It expires October 1, 2019.
A self-insured plan subject to the fee is a plan that provides accident or health coverage other than through an insurance policy, and the plan is established:
- By an employer for current or former employees;
- By one or more employer organizations for current or former employees; or
- By a voluntary employees’ beneficiary association (VEBA).
(Certain other organizations, such as a multiple employer welfare arrangement, are also subject to the fee.) The party responsible for the plan is the employer in a single employer situation. In a multi-employer arrangement or VEBA, the sponsor is the party that established or maintains the plan.
For years ending before October 1, 2013, the fee is $1, multiplied by the average number of lives covered under the plan for that plan year. For subsequent years, the fee increases to $2 per life covered, adjusted for inflation.
Fee is Deductible: The PCORI fee is tax deductible as an ordinary business expense, according to recent guidance from the IRS Office of the Chief Counsel.
Generally, plan sponsors of self-insured plans must use one of three methods to determine the average number of lives covered for the plan year – the actual count method, the snapshot method, or the Form 5500 method.
However, for plan years beginning before July 11, 2012, and ending on or after October 1, 2012, plan sponsors may determine the average number of lives covered using any reasonable method.
Plan sponsors subject to the tax will report and pay the fee on Form 720, Quarterly Federal Excise Tax Return, which the IRS revised to provide for the reporting and payment of the PCORI fee.
Form 720 and the fee are due annually no later than July 31 of the calendar year immediately following the last day of the policy or plan year. That means the first report and payment are due at the end of July 2013.
Double Counting: An employer may think that its employees are covered by the issuer of a health insurance policy, so it does not have to pay the PCORI fee again as the sponsor of a self-funded HRA. This is usually not the case. Sometimes referred to as “double counting,” the IRS states the plan sponsor and the insurance company generally both have to pay the fee.
However, there are special rules that provide some relief to employers with two or more applicable self-insured health plans. In those cases, the plans can be combined and treated as a single applicable self-insured health plan for purposes of calculating the PCORI fee, but only if the plans have the same plan sponsor and the same plan year.
There are also a number of exclusions.
If your organization sponsors a self-insured health plan, consult with your tax and employee benefits advisers about paying the PCORI fee and filing IRS form 720.
For More Information
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– content reprinted with permission from BKR International.
Disclaimer: All content provided in this article is for informational purposes only, and is subject to change. Contact a DS+B professional before using or acting on any information provided in this article