As previously reported, the Patient Protection and Affordable Care Act (the “ACA”) established the Patient Centered Outcomes Research Institute (the “PCORI”) for the purpose of assisting patients, clinicians, purchasers and policy-makers in making informed health decisions by advancing the quality of medicine through research. The ACA provides that the PCORI will be funded, in part, by fees to be paid by insurance companies that issue health insurance policies, as well by employers who sponsor and maintain an “applicable self-insured health plan.” In December of 2012, the Internal Revenue Service (the “IRS”) published final regulations that provide guidance on what constitutes an applicable self-insured health plan and how the PCORI fee is to be calculated (the “Regulations”).
The Regulations generally define an “applicable self-insured health plan” as any plan that provides for accident and health coverage other than through an insurance policy that is established or maintained by one or more employers for the benefit of their employees or former employees, including retiree-only plans, multi-employer plans, plans maintained in connection with a voluntary employees’ beneficiary association and multiple employer arrangements. In addition, stand-alone dental and vision plans and certain health flexible spending arrangements (“HIPAA-Excepted Benefits”), employee assistance programs, disease management programs and plans covering employees who are working and residing outside the United States are not considered “applicable self-insured health plans” and therefore are not subject to the PCORI fee.
Employers who sponsor one or more applicable self-insured health plans must pay the PCORI fee for each plan year ending on or after October 1, 2012 and before October 1, 2019, with respect to each plan. The PCORI fee is due no later than July 31 of the year following the end of any applicable plan year.
The first PCORI fee for self-insured health plans with plan years ending on or after October 1, 2012 and before October 1, 2013 is $1 multiplied by the average number of lives covered under the applicable plan during the plan year. For calendar year plans (the plan year beginning January 1, 2012 and ending December 31, 2012), the first PCORI fee will be due by July 31, 2013. However, for certain fiscal year plans (for example, a plan year beginning August 1, 2012 and ending July 31, 2013), the first PCORI fee will not be due until July 31, 2014. The second PCORI fee for self-insured health plans with plan years ending on or after October 1, 2013 and before October 1, 2014 is $2 multiplied by the average number of covered lives. Thereafter, the fee will be adjusted based on increases in the cost of healthcare. To report and pay the PCORI fee for each self-insured plan, employers must file IRS Form 720 (Quarterly Federal Excise Tax Return) by the applicable due date.
If an employer sponsors multiple self-insured plans with the same plan year, such plans may be treated as a single plan for purposes of calculating the fee. For example, if an employer maintains a self-insured medical plan and a separate self-insured prescription drug plan with the same plan year, the medical plan and prescription drug plan may be treated as one plan so that an employee covered under both plans would count as only “one covered life” for purposes of calculating the fee.
The determination of the average number of lives covered must be made under one of three methods that are set forth in the Regulations (the “actual count method,” the “snapshot method” and the “Form 5500 method”). However, for plans to which the new PCORI fee applies, in the case of plan years beginning before July 11, 2012 and ending on or after October 1, 2012, employers may determine the average number of lives covered under the plan for the plan year using “any reasonable method.” An employer must use the same method of calculating the average number of lives covered under a plan consistently for the entire plan year; however, a different method may be used each plan year.