Reminder – New Fees Apply to Self-Insured Health Plans and Some HRAs Form Due July 31

Much of the focus regarding compliance with the Affordable Care Act (ACA) has been on the requirement that employers with 50 or more full-time employees (including full-time equivalents) offer health insurance coverage to their full-time employees or pay a penalty – a requirement for which the effective date has been postponed until January 1, 2015.  Another provision affects certain employers that offer self-insured health and welfare plans (including certain health reimbursement arrangements (HRAs)), and if applicable, it should have been initially addressed by July 31, 2013 for organizations whose plan years ended in late 2012. The ACA created the Patient-Centered Outcomes Research Institute (PCORI), a private, nonprofit corporation, to conduct research and evaluate health outcomes, clinical effectiveness, risks, and benefits of medical treatments, etc.  The ACA requires the PCORI to be funded, in part, by a fee collected from health plan providers.  For fully insured plans, the fee will be paid by the health insurance issuer (the insurance company).  For self-insured plans, the plan sponsor (employer) is required to pay the fee.

What types of plans are covered?

The IRS guidance for applying the PCORI fees is not very “user-friendly” – especially as it relates to common employer-sponsored self-insured plans.  The limited official guidance that exists supports the view that the most common example for most employers of a self-insured health plan to which the PCORI fee may apply is a health reimbursement arrangement (HRA) – a plan under which the employer reimburses or pays certain health care expenses from its own assets.  The guidance indicates that the fee does not apply to most flexible spending accounts (FSAs) or to Health Savings Accounts (HSAs), and it does not apply to stand-alone vision and dental plans. In some cases, it may be necessary to consult special benefits counsel to make a determination of whether the fees apply.  Given the fact that the fee is a rather low-cost item for most self-insured plans sponsored by nonprofit employers, and filing is relatively simple, some organizations simply opt to pay the fee with respect to plans for which applicability is uncertain.  The costs and effort required to make a determination where applicability is uncertain may far outweigh the cost of simply paying the fee.

Form for reporting and due date

For self-insured plans to which the fee applies, the PCORI fee is reported on Form 720, which is to be filed annually by the plan sponsor (employer) by July 31 of the calendar year immediately following the last day of the plan year. The fee applies to plan years ending after September 30, 2012 and before October 1, 2019.  Even though Form 720 is designed to accommodate quarterly filings, the PCORI fees are only due annually, and no estimated payments (advance payments) are required.

Calculating the fee

The amount of the PCORI fee applicable for plan years ending on or after October 1, 2012, and before October 1, 2013, was $1 multiplied by the “average number of lives covered under the plan for the plan year.” The fee increased to $2 for the following year and is to be adjusted thereafter based on increases in the projected per capita amount of National Health Expenditures. The individuals taken into account in determining the “average number of lives covered under the plan for the plan year” include employees, spouses, and dependents that are covered under the plan.  However, a special rule applies with respect to covered HRAs and FSAs if the employer does not sponsor other types of self-insured plans.  If that is the case, an employer may treat the HRA or FSA as covering only one life per participant and is not required to count spouses and dependents.  As stated above, the fee will not apply to most FSAs. The average number of lives covered under the plan is determined annually after the end of the plan year under one of three methods provided in the Regulations.  The three allowed methods are:

  • The actual count method;
  • The snapshot method; and
  • The Form 5500 method.

A simplified summary of the three methods is provided below.  More specific details regarding the calculation methods are provided in the Regulations.

Actual count method

Under the actual count method, the employer adds the actual number of covered persons on each day of the plan year and divides by the number of days in the plan year.

Snapshot method

Under the snapshot method, the taxpayer picks a day or days from each calendar quarter and adds the actual number of covered persons on each of those days, then divides by the number of days selected as the snapshot.

Form 5500 method (for plans that file the Form 5500)

Under the Form 5500 method, the taxpayer uses the number of participants (not including spouses and dependents) reported on the Form 5500, Annual Return/Report of Employee Benefit Plan filed for that plan year provided it is filed no later than the due date for the PCORI fee.  If the plan offers coverage for the employee only (i.e., self-only coverage), the number is the beginning-of-the-year participant count plus the end-of-the-year participant count, divided by two. If the plan offers dependent coverage, the number is the beginning-of-the-year participant count plus the end-of-the-year participant count (not divided by two).

The IRS has published information on its website with guidance related to the PCORI fees.

This publication is for general informational and educational purposes only, and does not constitute legal, accounting, tax, financial, or other professional advice. It is not a substitute for professional advice. For permission to reprint, please contact us.  © 2024 Batts Morrison Wales & Lee, P.A.  All rights reserved.
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