The Affordable Care Act imposes a little-known new fee on certain employers and health insurance companies. The first payments are due on or before July 31, 2013.
The “PCORI” fee may take some employers by surprise. While many organizations are focused on the healthcare law’s “employer mandate,” which was just delayed until 2015, they may have overlooked the PCORI fee.
Examples of PCORI Projects Announced Recently
The new fee will go to fund the Patient-Centered Outcomes Research Institute (PCORI), which is a private, nonprofit organization. The institute “will assist, through research, patients, clinicians, purchasers and policy-makers, in making informed health decisions by advancing the quality and relevance of evidence-based medicine,” according to the IRS.
Here are two examples of projects:
1. PCORI will invest $17 million to research the “persistent disparities in controlling asthma among African-American and Hispanic/ Latino populations in the U.S.”
Research projects will “evaluate comprehensive and coordinated approaches to reducing poor health and other complications related to uncontrolled asthma in these target populations, as well as improving both patients’ and their health care providers’ adherence to treatment guidelines.”
2. PCORI will form a partnership to fund a major intervention to prevent injuries from falls in older adults.
Along with the National Institute on Aging and the National Institutes of Health, PCORI will commit up to $30 million to fund the study of non-institutionalized individuals.
Fee Is Deductible
The PCORI fee is tax deductible as an ordinary business expense, according to recent guidance from the IRS Office of the Chief Counsel. (AM 2013-002)
The fee doesn’t amount to much financially, but it does add compliance and filing burdens — and the usual penalties for failure to file and failure to pay taxes.
Background: Authorized by Congress as part of the healthcare law, the Patient-Centered Outcomes Research Institute (PCORI) performs medical research. Funding is provided, in part, by the new fee. (See right-hand box for more information about the type of research done by PCORI.)
The idea behind the research (and the fees funding it) is that it will help patients, doctors and others make better health choices, which will eventually lower healthcare costs.
The PCORI fee is imposed on:
1. Issuers of certain health insurance policies, and
2. Plan sponsors of self-insured health plans, including health reimbursement arrangements and health flexible spending arrangements.
Health insurance providers are responsible for the fee on their policies. In addition, individual employers and plan sponsors are responsible for the fee on their self-insured plans. The fee is imposed for plan years ending after September 30, 2012. It expires October 1, 2019.
A self-insured plan subject to the fee is a plan that provides accident or health coverage other than through an insurance policy and the plan is established:
- By an employer for current or former employees;
- By one or more employer organizations for current or former employees; or
- By a voluntary employees’ beneficiary association (VEBA).
(Certain other organizations such as a multiple employer welfare arrangement are also subject to the fee.) The party responsible for the plan is the employer in a single employer situation. In a multi-employer arrangement or VEBA, the sponsor is the association, committee, etc. that established or maintains the plan.
For years ending before October 1, 2013 the fee is $1, multiplied by the average number of lives covered under the plan for that plan year. (For subsequent years the fee increases to $2 per life covered, adjusted for inflation).
Generally, plan sponsors of self-insured plans must use one of the following methods to determine the average number of lives covered for the plan year:
- Actual count method.
- Snapshot method.
- Form 5500 method.
However, for plan years beginning before July 11, 2012 and ending on or after October 1, 2012, plan sponsors may determine the average number of lives covered using any reasonable method.
Plan sponsors subject to the tax will report and pay the fee on Form 720, Quarterly Federal Excise Tax Return, which the IRS revised to provide for the reporting and payment of the PCORI fee.
Form 720 and the fee are due annually no later than July 31 of the calendar year immediately following the last day of the policy or plan year. Some employers may be able to wait until July 31, 2014 to file and pay while others must meet the July 31 deadline this year. Consult with your tax adviser about your situation.
Exclusions and “Double Counting”
There are a number of exclusions, which are detailed in the chart below.
An employer may think that its employees are covered by the issuer of a health insurance policy so it does not have to pay the PCORI fee again as the sponsor of a self-funded HRA. This is usually not the case. Sometimes referred to as “double counting,” the IRS states the plan sponsor and the insurance company generally both have to pay the fee.
However, there are special rules that provide some relief to employers with two or more applicable self-insured health plans. In those cases, the plans can be combined and treated as a single applicable self-insured health plan for purposes of calculating the PCORI fee but only if the plans have the same plan sponsor and the same plan year.
If your organization sponsors a self-insured health plan, consult with your tax and employee benefits advisers about paying the PCORI fee and filing IRS form 720.
Below is a chart from the IRS summarizing which types of insurance coverage or arrangements are subject to the PCORI fee:
Type of insurance coverage or arrangement
Subject to PCORI fee?
Person responsible for paying and reporting the fee
|Accident and health coverage or major medical insurance coverage||Yes||
|Retiree-only health or major medical coverage||Yes||
|Health or major medical coverage under multiple policies or plans||Yes||
|Health Reimbursement Arrangement (HRA), including a premium-only HRA||Yes, unless the arrangement satisfies the requirements for being treated as an excepted benefit||
|Flexible Spending Arrangement (FSA)||Yes, unless arrangement satisfies requirements for being treated as excepted benefit||
|State & local government health or major medical plans for employees and/or retirees||Yes||
|Stand-alone dental or vision coverage||No|
|Group insurance policy designed and issued specifically to cover primarily employees working and residing outside the U.S.||No|
|Self-insured health plan designed specifically to cover primarily employees who are working/ residing outside the U.S.||No|
|Children’s Health Insurance Program (CHIP)||No|
|Military health plans established by federal law to provide medical care (other than through insurance policies) to individuals (spouses or dependents) by reason of the individual being (or having been) a member of the Armed Forces of the U.S.||No|
|Certain Indian tribal government health plans (programs established by federal law to provide medical care other than through insurance policies)||No (Note: The IRS stated on July 16 that some tribal health plans may be subject to PCORI fees)|
|Health Savings Arrangements (HSAs)||No|
|Archer Medical Savings Accounts (MSAs)||No|
|Hospital indemnity or specified illness benefits||No|
|Stop-loss or indemnity reinsurance||No|
|Employee assistance programs, disease management programs, or wellness programs||No, if the program doesn’t provide significant benefits in the nature of medical care or treatment|
|Accident-only coverage (including accidental death and dismemberment)||No|
|Disability income coverage||No|
|Automobile medical payment coverage||No|
|Workers’ compensation or similar coverage||No|
|On-site medical clinic||No|
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