Smart Benefits: Patient-Centered Outcomes Research Institute Fee Due July 31

Smart Benefits: Patient-Centered Outcomes Research Institute Fee Due July 31

The Affordable Care Act created the Patient-Centered Outcomes Research Institute (PCORI) to compare the effectiveness of different types of treatment for certain diseases and share its findings – all in an effort to improve the quality of treatment and reduce unnecessary costs. And to help fund the Institute, issuers of health insurance policies and plan sponsors of self-insured health plans must now pay an annual fee, due July 31.

Who Pays?

The carrier is responsible for paying the PCORI fee on fully insured policies, while the employer/plan sponsor is responsible for paying the fee on self-funded plans, including Health Reimbursement Arrangements (HRAs).

Filing Requirements

The fee applies to policy or plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019, and is due by July 31 of the year following the calendar year in which the plan/policy year ended. The first fee was due July 31, 2013, for those on November, December, and calendar year plan years, and is due July 31, 2014, for those with plan years that start January 2 through October 1.

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The fee is filed using Form 720, Quarterly Federal Excise Tax Return. Although a quarterly form, for PCORI, it’s filed annually only on the second quarter form, which is due by July 31.

Calculating Costs

The PCORI fee is based on the average number of lives covered under the policy or plan, which include employees, retirees and COBRA participants and their covered dependent spouses and children. The first year the fee is due, it’s $1 per covered life; for the second year, it’s $2. For the third through seventh years, it’s $2 per covered life, adjusted for medical inflation.

Several options are available for calculating covered lives:

• Actual count method – The plan counts its covered lives on each day of the plan year, and averages the result.
• Snapshot method – The plan determines the number of covered lives on the same day (plus or minus three days) of each quarter or month, and averages the result. (This method also allows the plan to count employees and retirees with self-only coverage separately from those with dependent coverage, and then multiply the count of employees and retirees who have dependent coverage by 2.35 to approximate the number of covered dependents, rather than actually counting them.)
• Form 5500 method – The plan determines the number of participants at the beginning and end of the plan year as reported on Form 5500. If dependents are covered, the plan adds the participant count for the start and the end of the plan year to get the total reportable lives. If dependents are not covered, the plan adds the participant count for the start and the end of the plan year and averages the result (this method cannot be used by insurers). Form 5500 must be filed by July 31 to use this option.

 

While the same method must be used throughout a reporting year, an employer may change methods from year to year.

If there are multiple self-funded plans (e.g., self-funded medical and HRA) with the same plan year, only one fee would apply to a covered life. But if there are both fully insured and self-funded plans, a fee would apply to each plan unless the employee is only covered under one type of plan – the insurer would pay the fee on the insured coverage and the plan sponsor would pay the fee on the HRA.

Amy Gallagher has over 21 years of healthcare industry experience guiding employers and employees. As Vice President at Cornerstone Group, she advises large employers on all aspects of healthcare reform, benefit solutions, cost-containment strategies and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, and is often quoted by national publications on the subject matter. Locally, Amy is a member of SHRM-RI, the Rhode Island Business Group on Health, and the Rhode Island Business Healthcare Advisory Council.