The Affordable Care Act created the Patient-Centered Outcomes Research Institute (PCORI) which is an organization tasked with improving the quality of health care and providing information to help consumers make informed health care decisions.
PCORI was scheduled to expire at the end of 2019. Calendar year health plans paid what was thought to be the last PCORI fee by July 31, 2019. Health plans with non-calendar plan years ending after December 31, 2018 but before October 1, 2019 were scheduled to make their final PCORI payment by July 31, 2020.
On December 20, 2019, the President signed into law a $1.4 trillion spending package that averted a government shutdown and funded the government through September 2020. As part of that package, the PCORI fee was extended for an additional 10 years. This means insurers or self-funded plans must continue to pay the fee through 2029 or 2030, depending on their plan year. The amount of the fee will be adjusted annually.
If a health plan is fully insured, the insurer is responsible for paying the PCORI fee. If a health plan is self-funded, the plan sponsor (employer) must pay the fee. Stand-alone dental or vision plans, EAPs, wellness programs, plans for employees outside of the U.S., HSAs, and almost all HRAs and FSAs are not required to pay the PCORI fee. The fee is a tax-deductible business expense for employers with self-insured plans.
The fee for plan years that end on or after October 1, 2018 and before October 1, 2019 is $2.45 per covered life. The new fee amount has not yet been released. The fee is a tax-deductible business expense for employers with self-insured plans.
The fee must be reported on the second quarter IRS Form 720 (Quarterly Federal Excise Tax Return). The amount is based on the average number of covered lives under the plan. A self-funded health plan determines the applicable fee by multiplying the fee amount by the average number of total lives covered by the plan.
The rules allow employers with self-funded plans to select among three methods for determining the number of covered lives.
- Actual Count Method. Calculate the sum of the lives covered for each day of the plan year and divide that sum by the number of days in the plan year.
- Snapshot Method. Add the totals of lives covered on a date during the first, second, or third month in each quarter, or an equal number of dates for each quarter, and divide the total by the number of dates on which a count was made.
- Form 5500 Method. Include the number of lives actually reported on Form 5500 for the plan year (may be used only if Form 5500 is filed before the PCORI Fee is submitted).
Insurers may select among four methods for determining the number of covered lives.
- Actual Count Method. Calculate the sum of lives covered for each day of the policy year and divide the sum by the number of days in the policy year.
- Snapshot Method. Add the total number of covered lives on a date during the first, second or third month in each quarter of the policy year, or an equal number of dates for each quarter, and divide the total by the number of dates on which a count was made.
- Member Months Method. Use the member months reported on the National Association of Insurance Commissioners Supplemental Health Care Exhibit, divided by 12.
- State Form Method. For an insurer not required to file the NAIC Exhibit, use data in any form that is filed with the state of domicile if the state form reports the number of lives covered.
Employers with self-funded health plans will now have to continue to calculate and pay the required PCORI fee by the due date based on calendar year. For assistance calculating the number of lives on which the fee should be based, contact your account manager or solutions@BASusa.com.