IRS Issues Q&As On Affordable Care Act Research Trust Fund Fees – First Filings Due July 31, 2013

The 2010 Affordable Care Act (ACA) includes a number of new taxes and fees to be assessed to pay for many of the new federal health care mandates. One of such fees is called the Patient- Centered Outcomes Research Trust Fund Fee (“PCORI fee”), which is to be remitted to a new Patient-Centered Outcome Research Institute (PCORI) which is an oversight entity to assist, “through research, patients, clinicians, purchasers and policy makers in making informed health decisions by advancing the quality and relevance of evidence based medicine.”

On June 7, 2013 the IRS issued Questions and Answers regarding the new PCORI fee http://www.irs.gov/uac/Patient-Centered-Outcomes-Research-Trust-Fund-Fee:-Questions-and-Answers.  The fee must be calculated and remitted on Form 720 by covered insurers and sponsors of self-funded health plans.

Employers using fully insured health plans will likely see a pass through of the $1 per covered life fee for 2013 and  $2 per covered life for 2014 on their premium billings. However, employers who self-fund their group health benefits will need file Form 720 (Quarterly Excise Tax Return) with and remit the excise tax to the IRS. Form 720 has recently been updated to reflect the new fee. The form and excise taxes are due not later than July 31 of the calendar year following the last day of the plan year. For calendar year plans (those ending 12/31/2012), the first annual report will be due July 31, 2013. The form and instructions are available on the IRS website. http://www.irs.gov/pub/irs-pdf/f720.pdf and http://www.irs.gov/pub/irs-pdf/i720.pdf.

For those self-funded plan sponsors who need to calculate the average covered lives, the final Treasury Regulations provide a number of methods that can be used, including the actual count method, a snap-shot method, member months method, state form method and a form 5500 method. We blogged on the new regulations when they were finalized last December: http://benefitsnotes.com/2012/12/certain-plan-designs-will-cost-more-under-the-patient-centered-outcomes-research-institute-fees/. For the first plan year, the Regulations allow plan sponsors to use any reasonable method.

The IRS also recently issued a Chief Counsel Memorandum http://www.irs.gov/pub/irs-utl/AM2013-002.pdf concluding that PCORI fees should generally be deductible by the health insurance companies and sponsors of self-funded plans required to pay the tax. This is helpful information for plan sponsors since excise taxes are not always tax deductible.

For 2014 there is an additional “transitional reinsurance fee” which will be assessed by Health and Human Services (HHS) to “stabilize premiums in the individual health insurance market during the initial years of the state and federal exchanges”. The fee for 2014 is expected to be $63.00 per covered life. We will provide more information on this fee as we get closer to 2014.