Background:

The Affordable Care Act (ACA) imposes a Patient-Centered Outcomes Research Institute (PCORI) fee for all self-funded medical plans* ending on or before September 30, 2029. If the plan is fully insured, the insurance carrier pays the fee on behalf of the plan sponsor (employer). If the plan is self-insured, the plan sponsor has the obligation to file Form 720 with the IRS by 7/31/2021.

NOTE: Health reimbursement arrangements (HRAs) are considered a self-insured health plan and are subject to PCORI fees. When an employer has an HRA with a fully insured medical plan, it’s considered two separate plans. The carrier pays the PCORI fee for the medical plan and the plan sponsor pays the fee for the HRA. When the employer has an HRA with a self-insured medical plan, they may be treated as one plan for purposes of calculating the PCORI fee.  

*PCORI Fees do not apply to

• Plans providing HIPAA-excepted benefits e.g. stand-alone dental, vision, health FSAs (if other group health coverage is available and the employer contributes $500 or less)
• Health Savings Accounts (HSAs)
• Wellness programs, EAPs, disease management programs that do not provide significant benefits for medical care
• Stop-loss insurance policies

Calculating the fee:

The amount of PCORI fees due for a self-insured medical plan is based upon the average number of covered lives (i.e. employees, dependents, COBRA participants, and covered retirees) under the self-insured medical plan and the applicable ERISA plan year (see table below).

The amount of PCORI fees due for an HRA is based upon the average number of covered employees (not belly buttons) under the HRA and the applicable plan or policy year.

There are 3 acceptable methods for calculating the average number of covered lives:

1. Actual Count Method – A plan sponsor may determine the average number of lives covered under a plan for a plan year by adding the totals of lives covered for each day of the plan year and dividing that total by the total number of days in the plan year.
2. Snapshot Method – A plan sponsor may determine the average number of lives covered under an applicable self-insured health plan for a plan year based on the total number of lives covered on one date (or more dates if an equal number of dates is used in each quarter) during the first, second or third month of each quarter, and dividing that total by the number of dates on which a count was made.
3. Form 5500 Method – An eligible plan sponsor may determine the average number of lives covered under a plan for a plan year based on the number of participants reported on the Form 5500, Annual Return/Report of Employee Benefit Plan, or the Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan.

Once the average number is calculated, Form 720 is what is used to report and pay to the IRS the amount of the PCORI fee due.

Tips for completing Form 720 for PCORI fees:

An employer/plan sponsor needs to complete:

• Company information and quarter ending “June 2021” (e.g. for 2020 plan year filing) – although the fee is paid annually, the tax period for the fee is the 2nd quarter of the year
• Part II, IRS No. 133 Applicable self-insured health plans
  • Column (a), row (c) if plan ended before October 1, 2020, – enter “Avg. number of lives covered for self-insured health plans”

OR

• • Column (a) row (d) if plan ended on or after October 1, 2020 and before October 1, 2021 – enter “Avg. number of lives covered for self-insured health plans”

AND

• • Column (c) – enter total Fee (lives x $)

• Part II, Line 2 – enter Total Tax (from calculation in IRS No. 133)
• Part III, Line 3 – enter Total Tax (from Part II, Line 2)
• Part III, Line 10 – enter Balance Due (from Part III, Line 3)
• Signature section
• Payment voucher with “2nd Quarter” checked,
  • Send the form, payment voucher, and check to:
    Department of the Treasury
    Internal Revenue Service
    Ogden, UT 84201-0009

If you have questions about the above, need help with calculating your PCORI fee obligation, or need help with another employee benefits administration question, please contact The Compliance Rundown. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Background:

The ACA imposes a Patient-Centered Outcomes Research Institute (PCORI) fee for all medical plans* ending on or after Oct. 1, 2012, and before Oct. 1, 2019.

If the plan is fully insured, the insurance carrier pays the fee on behalf of the plan sponsor (employer). If the plan is self-insured, the plan sponsor has the obligation to file Form 720 with the IRS by 7/31/2019.

NOTE: Health reimbursement arrangements (HRAs) are considered a self-insured health plan and are subject to PCORI fees. When an employer has an HRA with a fully insured medical plan, it’s considered two separate plans. The carrier pays the PCORI fee for the medical plan and the plan sponsor pays the fee for the HRA. When the employer has an HRA with a self-insured medical plan, they may be treated as one plan for purposes of calculating the PCORI fee.  

*PCORI Fees do not apply to

• Plans providing HIPAA-excepted benefits e.g. stand-alone dental, vision, health FSAs (if other group health coverage is available and the employer contributes $500 or less)
• Health Savings Accounts (HSAs)
• Wellness programs, EAPs, disease management programs that do not provide significant benefits for medical care
• Stop-loss insurance policies

Calculating the fee:

The amount of PCORI fees due for a self-insured medical plan is based upon the average number of covered lives (i.e. employees, dependents, COBRA participants, and covered retirees) under the self-insured medical plan and the applicable ERISA plan year (see table below).

The amount of PCORI fees due for an HRA is based upon the average number of covered employees (not belly buttons) under the HRA and the applicable plan or policy year.

There are 3 acceptable methods for calculating the average number of covered lives:

1. Actual Count Method – A plan sponsor may determine the average number of lives covered under a plan for a plan year by adding the totals of lives covered for each day of the play year and dividing that total by the total number of days in the plan year.
2. Snapshot Method – A plan sponsor may determine the average number of lives covered under an applicable self-insured health plan for a plan year based on the total number of lives covered on one date (or more dates if an equal number of dates is used in each quarter) during the first, second or third month of each quarter, and dividing that total by the number of dates on which a count was made.
3. Form 5500 Method – An eligible plan sponsor may determine the average number of lives covered under a plan for a plan year based on the number of participants reported on the Form 5500, Annual Return/Report of Employee Benefit Plan, or the Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan.

Once the average number is calculated, Form 720 is what is used to report and pay to the IRS the amount of the PCORI fee due.

Some tips for completing Form 720 for PCORI fees:

An employer/plan sponsor needs to complete:

• Company information and quarter ending “June 2019” (e.g. for 2018 plan year filing) – although the fee is paid annually, the tax period for the fee is the 2nd quarter of the year
• Part II, IRS No. 133 Applicable self-insured health plans
  • Column (a), row (c) if plan ended before October 1, 2018, – enter “Avg. number of lives covered for self-insured health plans”

OR

• • Column (a) row (d) if plan ended on or after October 1, 2018 and before October 1, 2019 – enter “Avg. number of lives covered for self-insured health plans”

AND

• • Column (c) – enter total Fee (lives x $)

• Part II, Line 2 – enter Total Tax (from calculation in IRS No. 133)
• Part III, Line 3 – enter Total Tax (from Part II, Line 2)
• Part III, Line 10 – enter Balance Due (from Part III, Line 3)
• Signature section
• Payment voucher with “2nd Quarter” checked,
  • Send the form, payment voucher, and check to:
    Department of the Treasury
    Internal Revenue Service
    Cincinnati, OH 45999-0009

July 31, 2020 will be the final year for paying PCORI fees under the current ACA Risk & Market Stabilization Programs for plan years ending before October 1, 2019.

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