BPC is here to help you understand the regulatory and compliance aspects of Affordable Care Act (ACA) as it relates to your BPC Benefits plans. The enactment of ACA created the Patient-Centered Outcomes Research Institute or PCORI to support clinical effectiveness research and is funded in part by fees paid by health insurance carriers and health plan sponsors. Health care reform imposes PCORI fees on certain health insurers and self-insured health plan sponsors for policy or plan years ending on or after October 1, 2012 and before October 1, 2019. Only employers whose plan year ended on or between October 1, 2012, and December 31, 2012, are required to report and make a payment by July 31, 2013.
Here are some frequently asked questions regarding Patient-Centered Outcomes Reach Institute (PCORI) fees:
Who Pays the Fee?
- For fully insured plans the insurance carrier pays the fee.
- For self-funded plans, including HRAs, the plan sponsor (generally the employer) pays the fee.
Which Plans are Subject to the Fee?
The following arrangements are subject to the PCORI fee:
Health Reimbursement Arrangements (HRAs) offered as a standalone plan, integrated with a fully insured plan or a retiree only plan. The plan sponsor (generally the employer) must pay a fee with respect to HRA in addition to the fees that will be paid by the insurance company for the insured plan. HRAs offered with a self-funded plan with the same plan sponsor can combine the fee.
Health Flexible Spending Accounts (FSAs) provided in lieu of other group health coverage or funded primarily with employer contributions or flex credits. However, Health Flexible Spending Account (FSA), it is not subject to the PCORI fee as long as the Health FSA is a HIPAA excepted benefit (if other group health coverage is made available).
Self-insured health plans and health insurance policies, including plans and policies providing coverage only to retirees.
The following arrangements are not subject to the PCORI fee:
Benefits excepted from the Health Insurance Portability and Accountability Act (“HIPAA”), such as limited-scope dental and vision plans and health FSAs funded primarily by employee salary reduction contributions (if other group health coverage is made available);
Employee assistance, disease management, and wellness programs that do not provide significant benefits in the nature of medical care or treatment; and
Health Savings Account (HSA)
How do you determine the Number of Covered Lives for HRAs and Health FSAs?
HRAs and Health FSAs are permitted to assume one covered life for each employee participating in an HRA or Health FSA (and, therefore, to disregard any spouse or dependents) if they are offered with a fully insured health plan or they do not offer a self-funded health insurance plan other than the HRA or Health FSA. If the HRA or Health FSA is combined with a self-funded health plan, the plan sponsor may treat them as a single plan and count the number of covered lives, which would include covered spouses and dependents. Self-insured plans are not required to use the same counting method each year or use the same approach for each plan. Other counting options are available for issuers with respect to fully insured plans.
The regulations offer three optional counting methods:
the “snapshot method,” which counts covered lives by adding the actual covered lives on at least one designated date per quarter and divides that sum by the number of designated dates used. (So, if the last day of each quarter is used as the designated date, then the average is determined by adding the number of lives covered on the last day of each quarter and dividing by four. The final regulations allow some flexibility to allow the use of a date within three days of the date selected in the first quarter.)
First year reporting relief: For plan years ending on or after October 1, 2012 and beginning before July 11, 2012 the plan sponsor can use any reasonable method to determine the average number of covered lives during the first year. The regulations specifically suggest using the snapshot method but only using quarters beginning on or after May 14, 2012, so employers generally can safely exempt first quarter counts from the snapshot method, for the first year only.
If BPC administers your HRA or FSA Plan, you can use your BPC employer log in to access your Monthly Account Analysis Reports which will provide the employee count information you need. These reports will be saved for three years so you can access the months you will need to determine the count of covered lives using the snapshot method described above.
the “actual count method,” which counts covered lives on each day of the plan year;
the “Form 5500 method,” which counts covered lives based on the number of HRA participants actually reported on the annual Form 5500 for the Plan Year. Under this method, the average is the sum of the total HRA participants identified on Form 5500 at the beginning of the year and the total participants identified on Form 5500 at the end of the year, divided by 2.
Payment and Reporting of Fees
Plan sponsors must report the number of covered lives and pay the PCORI fee on IRS Form 720, “Federal Excise Tax Return,” by July 31 of the calendar year immediately following the end of the plan year. Because the PCORI fee is imposed on sponsors and issuers, rather than on the plans themselves, the Department of Labor has advised that the PCORI fee generally does not constitute an expense that may be paid from plan assets.
When is the PCORI fee due?
The PCORI fee must be reported and paid for a plan year no later than July 31 of the calendar year following the end of the plan year, as indicated below:
Plan Year End Date
October 1, 2012 - December 31, 2012
January 1, 2013 - September 30, 2013
Fee Due Date (first year)
July 31, 2013
July 31, 2014
How much is the fee?
For the first year of applicability, the fee is $1 per covered life. For the second year, the fee increases to $2 per covered life. For later years (through the 2018 plan year), the fee will be indexed to national health expenditures.
Where can I find the form used to pay the fee?
The PCORI fee is remitted using IRS Form 720, the Quarterly Federal Excise Tax Return. The IRS has revised Form 720 to include the reporting and payment of PCORI fees. Although Form 720 is filed quarterly for most other federal excise taxes, the PCORI fee reporting and payment are only required annually, on the second-quarter filing, due July 31.
The IRS recently amended Form 720 and accompanying instructions, which are available here:
How do I complete the Form 720?
- Complete the general information at the top of page 1
- The PCORI fee is reported on page 2 of the Form, under Part II. Sponsors should report the number of covered lives in column a, and multiply by the rate in column b ($1 this year). Then, fill in the total at the bottom of Part II.
- Sign and date the form at the bottom of page 2.
- Send the Form 720 and the Form 720-V Payment Voucher with payment to the appropriate IRS office listed in the instructions. See link to IRS Form 720 above.