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The ACA and PCORI Fee Updates

Posted 5:25 PM by

The Affordable Care Act (ACA) created 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.

For policy and plan years ending on or after Oct. 1, 2014, the fee is $2.08 per person enrolled in the plan ($2 per person enrolled prior to Oct. 1, 2014). 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. The filing will be due on or before July 31, 2015. 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): Only if the EAP 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 2015). 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 in determining the average number of enrollees.  The methods are as follows:

  1. The Form 5500 Method: If the plan is required to file Form 5500 and your 2014 Form 5500 e-filed timely and before July 31, 2015, 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 $2.08.
  2. 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.
  3. 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 four.

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 2015.
  • 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 $2.08 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 5 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.

The fee needs to be paid using Electronic Federal Tax Payment System (EFTPS).

  •  Mail the signed and completed Form 720 to:

Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45999-0009

  •  If you want to use FedEx or UPS, 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 your KSM advisor.

About the Author
Patrick Brauer is a partner in Katz, Sapper & Miller’s Employee Benefit Plan Services Group. Patrick has considerable experience providing ERISA audits and serves as technical or engagement quality reviewer on several complex plan audit engagements. Connect with him on LinkedIn.

 

About the Author
Jolaine Hill is a director in Katz, Sapper & Miller’s Tax Services Group. Jolaine is primarily responsible for tax compliance issues that include the technical review of tax returns. She is also charged with ensuring that the accounting staff remains current on tax issues. Connect with her on LinkedIn

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