July 19, 2013 – Health Care Reform – PCORI Fees: Do you have to file by July 31st?
Many requirements under Health Care Reform (“HCR”) have not been delayed; among them is the payment and filing of Patient-Centered Outcomes Research Institute (“PCORI”) fees.
Important: Many group health plans must calculate and file PCORI fees relating to the 2012 plan year. If you have a group health plan with a calendar plan year, a plan year beginning on November 1, or a plan year beginning on December 1, the filing for the 2012 plan year is due by July 31, 2013. Other non-calendar year plans will first file by July 31, 2014.
What is PCORI?
HCR establishes a new nonprofit corporation called the “Patient-Centered Outcomes Research Institute” (“Institute”) to assist patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing comparative clinical effectiveness research. The Institute will evaluate and compare health outcomes and the clinical effectiveness, risks, and benefits of medical treatments, services, procedures, drugs, and other strategies or items that treat, manage, diagnose, or prevent illness or injury.
How is PCORI funded?
This is where you enter the picture. The Institute will be funded by the Patient-Centered Outcomes Research Trust Fund, which in turn, is funded in part by fees paid by issuers of health insurance policies and sponsors of self-insured health plans PCORI fees.
When/How are PCORI fees reported and paid?
Beginning with plan years ending after October 1, 2012, and before October 1, 2019, PCORI fees are paid annually through the use of the IRS Quarterly Federal Excise Tax Return Form 720; recently revised to accommodate payment of the PCORI fees. PCORI fees must be paid by July 31 of the calendar year immediately following the last day of the plan year to which the filing relates. Application of this rule has been challenging. For example: return that reports PCORI fees for a calendar plan year ending on December 31, 2012, must be filed by July 31, 2013. However, a return that reports PCORI fees for a plan year beginning June 1, 2012 and ending May 31, 2013 must be filed by July 31, 2014.
What health plans are subject to the fees?
In general, there is no uniform definition of health plan for purposes of the many different HCR requirements. Care must be taken to correctly identify the definition used for a particular requirement. The following health plans are subject to PCORI fees:
- Fully insured plans
- Self-insured plans
- Retiree only plans
- EAP, disease-management, wellness programs of both self-insured and fully insured plans, if significant benefits are provided in the nature of medical care or treatment
- Health reimbursement arrangements (“HRAs”)
- Health flexible spending accounts (“Health FSAs”) not excepted from HIPAA Portability
What health plans are not subject to the fees?
- Excepted benefits from HIPAA Portability (including many health FSAs, stand-alone dental, stand-alone vision, disease specific coverage, etc.)
- EAP, disease-management, wellness programs of both self-insured and fully insured plans, if they do not provide significant benefits in the nature of medical care or treatment.
- Expatriate plans (depending on facts and circumstances)
- Stop-loss and reinsurance policies.
How is the fee calculated?
The fee that is due is based on the applicable dollar amount for a plan year (described below) multiplied by the average number of covered lives under the plan for the plan year. Note that this requires an average to be calculated. Also, note the use of “covered lives” instead of employees or plan participants. Both of these definitional elements add difficulty to the fee calculation.
Who is responsible for the payment?
The responsible party depends upon whether the plan is fully insured or self-insured. Insurance carriers are responsible for the PCORI fees for fully insured plans. Plan sponsors (typically the employers) are responsible for the PCORI fees for self-insured plans.
What are the methods of calculation?
There are several methods from which to choose. The menu of methods depends in part upon whether the plan is fully insured or self-insured. With respect to a self-insured health plan, there are three alternative methods available:
- Actual count method
- Snapshot dates method
- Form 5500 method
In addition, “special rules” exist for self-insured, account based plans like health FSAs and HRAs. In general, the regulations allow plan sponsors to assume one covered life for each employee with an HRA or health FSA provided the HRA or health FSA is not an excepted benefit. In addition, where the employer sponsors both a self-insured medical plan and an HRA, an employee only needs to have one fee paid; not one fee for the HRA and one fee for the self-insured medical plan.
What is the Applicable Dollar Amount?
- Plan years ending on or after October 1, 2012 but before October 1, 2013: $1
- Plan years ending on or after October 1, 2013 but before October 1, 2014: $2
- Plan years ending on or after October 1, 2014 but before October 1, 2019: Indexed by formula.
Action Items:
- Identify the health plans.
- Identify the health plans subject to the fee.
- Identify relationship among health plans subject to the fee.
- Identify the plan year for the plan.
- Identify by when the fees must be paid.
- Identify the means by which each benefits are provided under the plan(s).
- Identify who is statutorily responsible for reporting and paying the fee.
- For self-insured health plans, identify alternative method for determining average covered lives.
- Identify from where the fee will be paid.
- Timely complete and submit Form 720.
Important: If you need help identifying what plans are subject, how to calculate the fees, etc., we can help. And, we have the Form 720 software to prepare the actual filing.
If you have any questions or would like assistance with any of the foregoing items, please contact us.
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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.