Be prepared: For employers that sponsor self-insured group health plans, including Individual Coverage Health Reimbursement Arrangements (ICHRAs), the deadline for paying fees that fund the Patient-Centered Outcomes Research Institute (PCORI) is fast approaching and it's important to mark your calendars. As human resources and finance departments know, keeping up with ever-changing compliance requirements of the ACA can be a challenging task, and it's crucial to understand what these fees entail and how to ensure compliance. Whether you’re already familiar or this is your first year dealing with PCORI fees, we take a look below at the essentials companies need to know to stay on track.
What are PCORI fees?
The PCORI fees were established as part of the Affordable Care Act (ACA) and are used to fund and conduct research to evaluate the effectiveness of medical treatments, procedures and strategies that treat, manage, diagnose or prevent illness or injury.
These fees are applicable to employers who sponsor self-insured health plans or have Health Reimbursement Arrangements (HRAs) that are not integrated with a fully-insured plan. The purpose of PCORI research is to provide valuable insights to assist patients, healthcare providers, and policy-makers in making informed healthcare decisions.
What is the deadline for PCORI fees?
The fees are due annually, and this year’s deadline is July 31, 2023. (In other years, if July 31st falls on a weekend, the deadline may be shifted to August).
How much is the PCORI fee?
This year, the PCORI fee is $3 per covered life for plans ending on or after October 1, 2022, and before October 1, 2023. (Last year, it was $2.79 per covered life, and the Secretary of Health and Human Services adjusts the amount every year to account for inflation.)
How are fees calculated?
The calculation of PCORI fees is based on the average number of covered lives under the health plan during the applicable policy or plan year—meaning anyone who is covered during the plan year, both employees and their dependents, should be counted.
The fees are typically assessed on a per-covered-life basis, and there are two methods to determine the fee amount:
- Actual Count Method: This approach involves calculating the average number of covered lives for each day of the plan year. It requires detailed records of the number of individuals covered by the plan.
- Snapshot Method: The snapshot method is a simplified option. It involves calculating the average number of covered lives based on the number of participants at a single point in each quarter.
- 5500 Method: This method involves filling out the Form 5500, specifically Part II, to report the number of covered lives and calculate the fees based on the applicable rate.
How do businesses report and pay PCORI fees?
To report and pay the PCORI fees, employers should use IRS Form 720, "Quarterly Federal Excise Tax Return." The relevant section for reporting PCORI fees is Part II, Section 133, of Form 720.
Are there any exemptions and exceptions? Certain types of plans are exempt from PCORI fees. These include plans that only offer limited-scope dental and vision benefits, certain health reimbursement arrangements (HRAs), and employee assistance programs (EAPs), among others. It's essential to review the specific guidelines to determine if your plan qualifies for an exemption.
What are the consequences of non-compliance? Non-compliance with PCORI fee requirements can lead to penalties and potential legal repercussions. Therefore, it is imperative for HR and finance departments to ensure they meet the filing deadline and accurately calculate and report the fees. Staying compliant not only avoids financial penalties but also upholds the organization's reputation as a responsible employer.
It’s worth noting that while the PCORI fee was initially set to expire in 2019, Congress extended it for another 10 years. Knowing the rules and processes of paying your company’s PCORI fees now is an investment in your future.
Citations:
https://www.irs.gov/newsroom/patient-centered-outcomes-research-institute-fee
