The Affordable Care Act (ACA) imposes a fee on issuers of specified health insurance policies and sponsors of self-insured health plans to help fund the Patient-Centered Outcomes Research Institute (PCORI). The PCORI fee is based on the average number of covered lives under the policy or plan and must be reported once a year on the second quarter IRS Form 720 and paid annually by its due date, July 31 (or the following business day if July 31 falls on a Saturday, Sunday or legal holiday).
The PCORI fee amount for plan years ending on or after October 1, 2023, and before October 1, 2024, is $3.22 per covered life (up from $3.00 previously). Non-calendar year plans (plan years ending after December 31, 2022, but before October 1, 2023) will make their PCORI fee payment based on the $3.00 per covered life amount. Note: As of the date of this writing, the IRS has not released the second quarter Form 720 reflecting the updated amount.
When did the PCORI fee go into effect, and when does it end?
The PCORI fee initially applied to specified health insurance policies with policy years ending after September 30, 2012, and before October 1, 2019, and applicable self-insured health plans with plan years ending after September 30, 2012, and before October 1, 2019. In December 2019, the Further Consolidated Appropriations Act, 2020, extended the fee for an additional 10 years, so it will continue to apply through plan years ending before October 1, 2029.
What types of plans must pay the PCORI fee, and how much is the fee?
The IRS has published a chart on which types of insurance coverage or arrangements are subject to the PCORI fee and also published a chart to track the filing due date and applicable rate depending on the month on which a specified health insurance policy or an applicable self-insured health plan ends.
Who pays the PCORI fee?
For fully insured plans, the insurance carrier is responsible for filing Form 720 and paying the PCORI fee; therefore, employers with only fully insured health plans have no filing requirement (but will be charged by the carrier for the cost of the fee). If an employer sponsors a self-insured health plan, the employer must file Form 720 and pay the PCORI fee. For self-insured plans with multiple employers, the named plan sponsor is generally required to file Form 720.
How do you determine the average number of covered lives under the policy or plan in order to calculate the PCORI fee?
The PCORI fee is based on the average number of covered lives under the policy or plan for the year.
The method used can be changed from year to year.
Do COBRA qualified beneficiaries and retirees or other former employees count as “covered lives” for purposes of calculating the PCORI fee?
These covered individuals and their beneficiaries must be taken into account in calculating the average number of covered lives.
Can the PCORI fee be paid from plan assets? Is the PCORI fee deductible?
The Department of Labor has stated that the PCORI fee cannot be paid from plan assets. In other words, the PCORI fee must be paid out of the general assets of the employer plan sponsor. It is not a permissible expense of a self-insured plan and cannot be paid in whole or in part by participant contributions. Furthermore, the PCORI fee expense should not be included in the plan’s cost when computing the plan’s COBRA premium; however, the IRS has indicated the fee is a tax-deductible business expense for employers with self-insured plans.
