An important deadline is looming under the Affordable Care Act (ACA) for employers that sponsor certain self-insured group health plans and issuers of certain health insurance policies. Employers and insurers will need to file IRS Form 720 and pay the federal comparative effectiveness research fee (PCORI fee) imposed under the ACA by July 31, 2013. The PCORI fee will fund the Patient-Centered Outcomes Research Institute, which is intended to assist the health care community in making informed health decisions by advancing the quality and relevance of evidence-based medicine.
The PCORI fee is $1 for each individual covered under a group health plan, for the first plan or policy year ending on or after October 1, 2012 (i.e., 2013 for a calendar-year plan). The amount of the fee increases to $2 per covered individual for the following plan or policy years (increased for inflation) and sunsets with the plan or policy year ending before October 1, 2019. Thus, the first PCORI fee is due July 31, 2013, and is payable each subsequent July 31 until the fee expires in July 2018. PCORI fees paid by an employer or insurer are tax-deductible as ordinary and necessary business expenses under Section 162 of the Internal Revenue Code. The PCORI fee is considered a liability of the plan sponsor and not the plan, and may not be paid from ERISAplan assets.
The PCORI fee is reported and paid on Internal Revenue Service (IRS) Form 720. The IRS has just released a revised version of Form 720 that includes two new lines for the PCORI fee (one line for plan sponsors of self-insured plans to report and one line for health insurance issuers). Third parties, such as third-party administrators, are not permitted to file Form 720 on behalf of reporting entities. (Also see “IRS Releases Revised Form 720 to Pay Patient-Centered Outcome Research Fee.”)
Final regulations regarding calculation of the PCORI fee were issued by the IRS in December 2012, which include detailed rules regarding the methods an employer or insurer can use to count the number of covered lives subject to the fee. In general, plan sponsors can use an actual count method, a snapshot method or a Form 5500 method. A plan sponsor must use a single method to determine the average number of lives covered under the plan for the entire plan year. However, a different method may be used from one plan year to the next.
Certain types of plans are exempt from paying the PCORI fee, notably most HIPAA-excepted benefits (such as stand-alone dental and vision plans), employer-sponsored health flexible spending accounts, coverage for on-site clinics, employee assistance programs, wellness and disease management programs, and group health plans covering expatriates. However, retiree-only plans, COBRA continuation coverage and stand-alone health reimbursement arrangements, or HRAs, offered in connection with a fully insured group health plan are subject to the PCORI fee.
The rules for determining what types of plans are subject to the PCORI fee and the methods for calculating the fee can be complicated.