IRS Raises Health Plan PCORI Fee Payable in 2021

The IRS is raising the fee that insurers or self-insured health plan sponsors will pay in 2021 to fund the federal Patient-Centered Outcomes Research Institute (PCORI) trust fund. In 2021, the fee is due Aug. 2.

The fee applies to health plans for the preceding calendar year. According to Notice 2020-84, which the IRS issued on Nov. 24, the current annual fee adjustments are as follows:

• For plan years that ended from Oct. 1, 2020 to Dec. 31, 2020 (including calendar year plans), the fee is $2.66 per person covered by the plan, up from $2.54 a year earlier.
  

• For plan years that ended last year before Oct. 1, 2020, the fee is $2.54 per person, up from $2.45 the year before.
  

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

Those sponsoring self-funded plans must remit the PCORI fee to the IRS along with an IRS Form 720.

Fee Applies Through 2029

The Affordable Care Act (ACA) created the fee to fund a Washington, D.C.-based institute that conducts research on the comparative effectiveness of medical treatments. The fee was originally to apply only to plans with terms ending after Sept. 30, 2012, and before Oct. 1, 2019. However, as part of the Bipartisan Budget Act of 2019, annual PCORI filing and fees were extended for an additional 10 years, through 2029.

Calculating PCORI Fees

The IRS provides self-insured employers with options for determining the average number of plan enrollees, which the IRS refers to as covered lives—employees, spouses and dependents covered by the health plan. According to the IRS, plan sponsors may use any of the following methods to calculate the average number of covered lives under the plan:

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

• The snapshot method—Plan sponsors add the total lives covered on one date in each quarter of the plan year.
  

• Snapshot factor method. Similar to the snapshot method, the number of lives covered on any one day may be determined by counting the actual number of lives covered on that day or by treating those with self-only coverage as one life and those with coverage other than self-only as 2.35 lives.
  

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

Plans Subject to PCORI Fees

"In determining the number of covered lives, you must count anyone covered under your self-insured medical programs, including former employees (and their dependents) who participate under COBRA or other post-employment coverage," explained Michigan-based law firm Warner Norcross & Judd. "You can treat all self-insured benefits as a single plan."

Gary Kushner, president and CEO of Kushner & Company, an HR strategy and employee benefits consulting firm in Portage, Mich., wrote that "Generally, health care flexible spending accounts (FSAs) are not required to file a Form 720 unless the employer (and not just the employee) makes contributions to it that exceed the lesser of $500 annually or a dollar-for-dollar match of the employee's contribution."

For health reimbursement arrangements (HRAs), employers should "first look at the integrated group health plan," Kushner said. If that plan is fully insured, the employer must file Form 720 and pay the annual fee for each employee with an employer-funded HRA for the applicable plan year. "In this case, the fee is paid per employee, not per covered life, so spouses and children covered by the health plan are not included in the fee calculation, he explained.

"If, however, the underlying group health plan is self-funded, then no separate 720 need be filed for the integrated HRA, but rather, one filing and fee for the self-funded group health plan is due" based on covered lives, not just employees, Kushner noted.

According to the IRS, which posted a chart showing the application of PCORI fees to common types of health coverage, the fee doesn't apply to health savings account (HSA) participants, as HSAs are individual accounts, not group health plans.

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