PCORI Fees
The Affordable Care Act (ACA) imposes a fee on health insurance issuers (insurance carriers) and self-insured plan sponsors (employers) in order to fund comparative effectiveness research. These fees are widely known as Patient-Centered Outcomes Research Institute (PCORI) fees, and were originally scheduled to expire for plan or policy years ending on or after October 1, 2019. However, a federal spending bill enacted at the end of 2019 extended the PCORI fees for an additional 10 years. As a result, the Internal Revenue Service (IRS) issued Notice 2020-84, which increases the PCORI fee amount for plan years ending on or after October 1, 2020, and before October 1, 2021, to $2.66 multiplied by the average number of lives (employees and dependents) covered under the plan for the plan year.
The existing methods to calculate the average number of covered lives under the plan include:
The actual count method—Plan sponsors add the total of lives covered for each day of the year, divided by the total number of days in the plan year.
The snapshot method—Plan sponsors add the total lives covered on one date in each quarter of the plan year.
The Form 5500 method—Plan sponsors use a formula that includes the number of participants reported on the Form 5500 for the plan year.
Transition Relief
The IRS provided transition relief related to the 2020 PCORI fee calculation, due to the anticipated termination of the PCORI fee prior to its extension. This transition relief allowed issuers and plan sponsors to use any reasonable method for calculating the average number of covered lives for this period, in addition to existing methods, so long as it was applied consistently for the duration of the plan year. However, this transition relief was not extended for the 2021 plan year. As a result, plans and issuers must use one of the existing methods referenced above for calculating the PCORI fee in 2021.
IRS Form 720
PCORI fees are reported annually on the second quarter IRS Form 720 no later than July 31st of the calendar year immediately following the last day of the policy year or plan year to which the fee applies. For plan years ending in 2020, the next PCORI fee payment will be due August 2, 2021, since July 31, 2021 is a Saturday. The IRS has posted Form 720 and Instructions for your reference. You may want to work with your tax advisor to determine how to report and pay the PCORI fees to the IRS by August 2, 2021. The chart below provides the applicable PCORI Fee, based on when your plan year ended.
PCORI Fees
How the Fees Apply To Different Plans
Special Counting Rule for HRAs: Plan sponsors are permitted to assume one covered life for each employee with an HRA, even if the HRA can reimburse expenses of the employee’s family members.
If you have any questions regarding the PCORI fees, please contact me.
Sincerely,
Matthew T. Hollister