The Affordable Care Act (ACA) created a new fee called the Patient-Centered Outcomes Research Institute (PCORI) fee. This fee is to be used to fund research on medical treatment effectiveness and is to be paid by both fully insured and self-funded group health plans.
The fee for the first year is $1 per person enrolled in the plan. A person enrolled in the plan includes the participating employee, spouses, domestic partners and dependents. COBRA and retiree participants also must be counted. The fee is due based on the year-end of the plan, beginning with plans ending on or after October 1, 2012. For plans with years ending in October, November or December 2012, a filing will be due on or before July 31, 2013. The fee must be reported on IRS Form 720, “Quarterly Federal Excise Tax Return.”
If you are an employer with a fully insured group health plan, no action is required as your health insurance carrier is required to report and pay this fee. This additional fee is most likely built into the premiums that you currently pay.
If you are an employer with a self-funded plan, you are responsible for calculating the fee, completing the Form 720 and paying the related fee.
The following plans are considered self-funded plans that are subject to the PCORI fee and the Form 720 filing requirement:
- All self-funded group health plans, including Health Reimbursement Accounts (HRAs)
- An HRA that is offered as part of a fully insured group health plan – the fee is paid only on the HRA part of the plan
- A stand-alone HRA plan
- On-site medical clinics
- Retiree-only group health plans
- Employee Assistance Programs (EAPs) – only if the EAP provides significant medical benefits
The following plans are exempt from the PCORI fee:
- Employee Assistance Programs (EAPs) – does not provide significant medical benefits
- Individual Health Savings Accounts (HSAs)
- Health and Dependent Flexible Spending Accounts (FSAs)
- Stand-alone dental plans
- Stand-alone vision plans
Upon determination that you have a self-funded plan, you must complete the IRS Form 720 (revised version dated April 2013). The form may be completed manually and mailed directly to the IRS (not required to be filed electronically).
The fee is based on the average number of enrollees for the plan year. Most employers should be able to obtain this information directly from their benefit plan service provider(s). If you have to calculate the number of enrollees yourself, there are three methods that you may choose from to determine the average number of enrollees. The methods are as follows:
- The Form 5500 Method: If the plan is required to file Form 5500 and your 2012 Form 5500 is filed timely and before July 31, 2013, this method can be used. To use this method, add the number of participants at the beginning of the year (Part II, line 5 of Form 5500) to the total participants at the end of the year (Part II, line 6d) and divide the total by 2.Then multiply this total by $1.
- The Actual Count Method: This method uses the number of lives covered for each day of the plan year divided by the number of days in the plan year.
- The Snapshot Method: This method uses the total number of lives covered on a given date in each quarter of the plan year. The sum is then divided by 4.
The following sections of the Form 720 will need to be completed (assuming that the Form 720 is being filed only to report the PCORI fee):
- Complete the top section of the form. The quarter ending is the second quarter, which is June 2013.
- Go to Part II, line 133. The “Applicable self-insured health plans” line is going to be completed. In column a, report the average number of lives covered. Multiply the number in column a by $1 and enter that amount. This calculated amount will also be entered in the tax column.
- Go to Part III and enter the total tax on line 3. Show 0 on line as no payments have been made towards this tax. Line 10 will show the amount due with the return.
- Sign and date the return on the bottom of page 2.
- Page 7 is the payment voucher that should be completed. Darken the circle for “2nd Quarter” on line 3.
The fee does not need to be paid using EFTPS. We recommend paying by check this first year as the IRS has not established a history of tracking payments.
- Make your check out to the United States Treasury.
- Mail the signed and completed Form 720, the payment voucher, and your check to:
- Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45999-0009
- If you want to use FedEx, UPS or DHL, the address to send your return to is:
- IRS Processing Center
201 W. Rivercenter Blvd.
Covington, KY 41011
The contents of this message are for informational purposes only. If you have any questions regarding the PCORI fee and filing requirement, please contact your benefit plan service provider or any of the following KSM advisors.
Bill Barks, Partner
Patrick Brauer, Partner
Bernadette Fletcher, Director
Karen Noel, Director
Jolaine Hill, Director