June 1, 2017 – Compliance Observer Alert – 2017 PCORI Fees

Compl Obs Header Alert_2016Applies to:  Self-Insured Health Plans, including HRAs & FSAs

With the release of IRS Notice 2016-64, the IRS provided that the PCORI fee (Patient-Centered Outcomes Research Institute fee) also called the CER fee (Comparative Effectiveness Research Fee) for plan years ending on or after October 1, 2016, and before October 1, 2017, is $2.26 per individual covered under an applicable health plan.

The PCORI fees generally apply to insurance policies providing accident and health coverage and self-insured group health plans. The final regulations contain some exceptions to this general rule and also clarify how the PCORI fees apply to certain types of health coverage arrangements.  For example, the PCORI fees do not apply if substantially all of the coverage under a plan or policy is for excepted benefits, as defined under HIPAA.  In addition, the PCORI fees may apply to retiree-only plans and policies, even though retiree-only coverage is exempt from many of the ACA’s other requirements.

PCORI fees are reported and paid annually using IRS Form 720 (Quarterly Federal Excise Tax Return).  These fees are due each year by July 31 of the year following the last day of the plan year.  This means that, for plan years ending in 2016, the PCORI fees are due by July 31, 2017.

For insured health plans, the issuer of the health insurance policy is required to pay the research fees.

For self-insured health plans, the research fees are paid by the plan sponsor and generally cannot be paid from plan assets.

The PCORI fees are based on the average number of covered lives under the plan or policy.  This ordinarily includes employees and their enrolled spouses and dependents.  Individuals who are receiving continuation coverage (such as COBRA coverage) must also be included in the number of covered lives under the plan in calculating the fee.  Plan sponsors of self-insured health plans must use one of the following three methods to determine the average number of lives covered under a plan for the plan year:

  1. Actual Count Method: A plan sponsor may determine the average number of lives covered under a plan for a plan year by adding the totals of lives covered for each day of the play year and dividing that total by the total number of days in the plan year.
  2. Snapshot Method: A plan sponsor may determine the average number of lives covered under an applicable self-insured health plan for a plan year based on the total number of lives covered on one date (or more dates if an equal number of dates is used in each quarter) during the first, second or third month of each quarter, and dividing that total by the number of dates on which a count was made.
  3. Form 5500 Method: An eligible plan sponsor may determine the average number of lives covered under a plan for a plan year based on the number of participants reported on the Form 5500, Annual Return/Report of Employee Benefit Plan, or the Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan.

HRAs and Health FSAs

HRAs and health FSAs are not completely excluded from the obligation to pay PCORI fees.  However, two special rules apply for plan sponsors that provide an HRA or health FSA. Under these special rules:

  1. If a plan sponsor maintains only an HRA or health FSA (and no other applicable self-insured health plan), the plan sponsor may treat each participant’s account as covering a single life. This means that the plan sponsor is not required to count spouses or other dependents.
  2. An HRA is not subject to a separate research fee if it is integrated with another self-insured plan providing major medical coverage, provided the HRA and the plan are established and maintained by the same plan sponsor and have the same plan year. This rule allows the sponsor to pay the PCORI fee only once with respect to each life covered under the HRA and other plan. However, if an HRA is integrated with an insured group health plan, the plan sponsor of the HRA and the issuer of the insured plan will both be subject to the research fees, even though the HRA and insured group health plan are maintained by the same plan sponsor.

The same analysis applies to health FSAs that do not qualify as excepted benefits.

Please see the following IRS resources for more information on the ACA’s PCORI fees:

Final regulations on the PCORI fees

PCORI Fee Overview Page

PCORI Fee: Questions and Answers

IRS Form 720 and instructions

PCORI Fee Due Dates and Applicable Rates

Chart of Health Coverage and Arrangements subject to PCORI Fee

Please contact your AssuredPartners Benefits Team if you have questions or need assistance with this topic or other compliance matters

Information contained herein is for educational and/or informational purposes only.   The information provided may change over time as the laws and regulations change. This information is not, nor is it intended to be, legal advice and each employer or client should seek their own legal counsel for guidance regarding individual situations.

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