IRS Sets PCORI Fees for 2017

Employers with self-insured health plans must pay the annual fee by July 31

By Stephen Miller, CEBS Nov 9, 2016
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The annual fee to fund the Patient-Centered Outcomes Research Institute (PCORI), paid by employers that sponsor self-insured health plans and by commercial group health insurance providers, will rise next year by an additional 9 cents per plan enrollee.

The fee was created by the Affordable Care Act to pay for research on the clinical effectiveness of medical procedures, assessed for each plan year ending after Sept. 30, 2012 and before Oct. 1, 2019. The amount of the fee is adjusted each year for inflation.

IRS Notice 2016-64, issued on Nov. 4, provides that the PCORI fee for plan years ending on or after Oct. 1, 2016, and before Oct. 1, 2017, including 2016 calendar year plans, is $2.26 per each person covered under the applicable health plan, up from $2.17 for the previous plan year.

"All plan sponsors of self-insured group health plans will pay the PCORI fee in 2017, but the amount of the fee paid will vary depending on when the plan year ends," said Rich Stover, principal at Xerox HR Services in New York City, who co-wrote an alert on the fee increase.

Self-Insured Plan Year Ending in 2016 Fee per Covered Life for July 31, 2017 Payment
Plan year ending on or after Oct. 1, 2016, through Dec. 31, 2016, including calendar year plans.$2.26
Plan year ending on or after Jan. 1, 2016, through Sept. 30, 2016$2.17
Source: Xerox HR Services.

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

"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," Stover said.

In other words, the remaining due dates for self-insured employers are July 31 of 2017, 2018 and 2019.

[SHRM members-only HR Q&A: What government reporting and fee requirements are imposed on employers by the ACA?]

Paying PCORI Fees

For self-funded plans, the self-insured employer/plan sponsor is responsible for submitting the fee and accompanying paperwork to the IRS. "Third-party reporting and payment of the fee is not permitted for self-funded plans," said Mark Holloway, director of compliance services at Lockton Companies, a benefits services firm based in Kansas City, Mo.

Employers subject to the fee must submit it by July 31 of the year following the last day of the plan year. For the coming year, self-insured health plan sponsors should use Form 720 for the second calendar quarter (and related instructions) to report and pay the PCORI fee by July 31, 2017.

"On page two 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 is multiplied by $2.26 for plan years ending on or after Oct. 1, 2016, to determine the total fee owed to the IRS.

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 2nd Quarter. "Failure to properly designate '2nd 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. For self-insured health plans, in other words, "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 said, citing a May 2013 IRS memorandum.

Related SHRM Article:

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

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