PCORI Fee Is Due by July 31 for Self-Insured Health Plans

Editor's note: The article below, posted on July 2, 2019, is out of date.

The next annual fee that sponsors of self-insured health plans must pay to fund the federal Patient-Centered Outcomes Research Institute (PCORI) is due July 31, 2019.

The Affordable Care Act mandated payment of an annual PCORI fee by plans with terms ending after Sept. 30, 2012, and before Oct. 1, 2019, to provide initial funding for the Washington, D.C.-based institute, which funds research on the comparative effectiveness of medical treatments. Self-insured plans pay the fee themselves, while insurance companies pay the fee for fully insured plans but may pass the cost along to employers through higher premiums. 

The IRS treats the fee like an excise tax.

The PCORI fee is due by the July 31 following the last day of the plan year. The final PCORI payment for sponsors of 2018 calendar-year plans is due by July 31, 2019. The final PCORI fee for plan years ending from Jan. 1, 2019 to Sept. 30, 2019, will be due by July 31, 2020.

In Notice 2018-85, the IRS set the amount used to calculate the PCORI fee at $2.45 per person covered by plan years ending Oct. 1, 2018, through Sept. 30, 2019.

The chart below shows the fees to be paid in 2019, which are slightly higher than the fees owed in 2018. The per-enrollee amount depends on when the plan year ended, as in previous years.

Nearing the End

The PCORI fee will not be assessed for plan years ending after Sept. 30, 2019, "which means that for a calendar-year plan, the last year for assessment is the 2018 calendar year," wrote Richard Stover, a New York City-based principal at HR consultancy Buck Global, and Amy Dunn, a principal in Buck's Knowledge Resource Center.

For noncalendar-year plans that end between Jan. 1, 2019 and Sept. 30, 3019, however, there will be one last PCORI payment due by July 31, 2020.

"There will not be any PCORI fee for plan years that end on October 1, 2019 or later," according to 360 Corporate Benefit Advisors.

The PCORI fee was first assessed for plan years ending after Sept. 30, 2012. The fee for the first plan year was $1 per plan enrollee, which increased to $2 per enrollee in the second year and was then indexed in subsequent years based on the increase in national health expenditures.

[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]

FSAs and HRAs

In addition to self-insured medical plans, health flexible spending accounts (health FSAs) and health reimbursement arrangements (HRAs) that fail to qualify as “excepted benefits” would be required to pay the per-enrollee fee, wrote Gary Kushner, president and CEO of Kushner & Co., a benefits advisory firm based in Portage, Mich.

As set forth in the Department of Labor's Technical Release 2013-03:

• A health FSA is an excepted benefit if the employer does not contribute more than $500 a year to any employee accounts and also offers a group health plan with nonexcepted benefits.
  

• An HRA is an excepted benefit if it only reimburses for limited-scope dental and vision expenses or long-term care coverage and is not integrated with a group health plan.
  

Kushner explained that:

• If the employer sponsors a fully insured group health plan for which the insurance carrier is filing and paying the PCORI fee and the same employer sponsors an employer-funded health care FSA or an HRA not exempted from the fee, employers should only count the employees participating in the FSA or HRA, and not spouses or dependents, when paying the fee.
  

• If the employer sponsors a self-funded group health plan, then the employer needs to file the form and pay the PCORI fee only on the number of individuals enrolled in the group health plan, and not in the employer-funded health care FSA or HRA.
  

An employer that sponsors a self-insured HRA along with a fully insured medical plan "must pay PCORI fees based on the number of employees (dependents are not included in this count) participating in the HRA, while the insurer pays the PCORI fee on the individuals (including dependents) covered under the insured plan," wrote Mark Holloway, senior vice president and director of compliance services at Lockton Companies, a benefits broker and services firm based in Kansas City, Mo. Where an employer maintains an HRA along with a self-funded medical plan and both have the same plan year, "the employer pays a single PCORI fee based on the number of covered lives in the self-funded medical plan (the HRA is disregarded)."

Paying PCORI Fees

Self-insured employers are responsible for submitting the fee and accompanying paperwork to the IRS, as "third-party reporting and payment of the fee is not permitted for self-funded plans," Holloway noted.

For the coming year, self-insured health plan sponsors should use Form 720 for the second calendar quarter to report and pay the PCORI fee by July 31, 2019.

"On p. 2 of Form 720, under Part II, the employer needs to designate the average number of covered lives under its applicable self-insured plan," Holloway explained. The number of covered lives will be multiplied by $2.45 for plan years ending on or after Oct. 1, 2018, to determine the total fee owed to the IRS next July.

To calculate "the average number of lives covered" or plan enrollees, employers should use one of three methods listed on pages 8 and 9 of the Instructions for Form 720. A white paper by Keller Benefit Services describes these methods in greater detail.

Although the fee is paid annually, employers should indicate on the Payment Voucher (720-V), located at the end of Form 720, that the tax period for the fee is the second quarter of the year. "Failure to properly designate 'second quarter' on the voucher will result in the IRS's software generating a tardy filing notice, with all the incumbent aggravation on the employer to correct the matter with the IRS," Holloway warned.

A few other points to keep in mind: "The U.S. Department of Labor believes the fee cannot be paid from plan assets," he said. In other words, for self-insured health plans, "the PCORI fee must be paid by the plan sponsor. It is not a permissible expense of a self-funded plan and cannot be paid in whole or part by participant contributions."

In addition, PCORI fees "should not be included in the plan's cost when computing the plan's COBRA premium," Holloway noted. But "the IRS has indicated the fee is, however, a tax-deductible business expense for employers with self-funded plans," he added, citing a May 2013 IRS memorandum.

Related SHRM Article:

PCORI & Reinsurance Fees—Keeping Them Straight, SHRM Online, June 2013