What are PCORI fees?
PCORI fees represent a new tax under the Affordable Care Act.
What plans are subject to the fee?
Plans which are subject to the fee:
- Accident and health coverage or medical insurance coverage plans
- Health Reimbursement Arrangements (HRAs)
- Flexible Spending Accounts (FSAs), if employer funded
- Retiree health plans
Plans which are not subject to the fee:
- Expatriate coverage for employees who work and live outside the United States
- Health savings accounts (HSAs)
- FSAs, unless the employer funds the account
- Employee assistance programs (EAPs) and wellness programs
Does the fee apply to group health plans?
Yes. The fee applies to all group health plans large and small.
Who pays PCORI fees?
For fully insured plans, the insurance carrier will pay the fee. The employer must pay the fee for plans which are either partially or wholly self-insured. If employer sponsors a fully insured plan and an HRA and/or FSA, the employer must pay the fee for the HRA and FSA.
What is the due date of the fee?
July 31 of each year.
Which plan year-ends must pay the fee by July 31, 2014?
The annual fee is due by July 31, 2014 for plan years ending between January 1, 2013 and December 31, 2013, and is paid along with the filing of Form 720.
What is the fee?
For policy years ending before October 1, 2013 the fee is $1.00 per covered life. For policy years ending on or after October 1, 2013 the fee due July 31, 2014 is $2.00 per covered life. After 2014, the fee is indexed annually to national health expenditures until it ends in 2019.
The PCORI fee is an ordinary and necessary business expense and is deductible.
How is the fee calculated?
Actual Count Method: Count the covered lives on each day of the plan year and average the results.
Snapshot Count Method: Determine the number of covered lives on the same day (plus or minus three days) of each quarter or month, and average the result.
Snapshot Factor Method: Determine the total number of participants with individual coverage and with family coverage on the same day and multiply by 2.35.
5500 Method: Determine number of participants at the beginning and end of the plan year. If only individual coverage is offered add the two numbers together and divide by 2. If individual and family coverage is offered simply add the two together.
The 5500 must be filed no later than July 31 in order to use the 5500 method. The 5500 method may not be used if the July 31 due date for the 5500 is extended.
What is the definition of “covered lives”?
The term “covered lives” includes employees, spouses and dependents if covered, retirees and COBRA participants.
What is the definition of “participant”?
The term “Participant” includes employees, retirees and former employees covered by COBRA.
What is an HRA and are there special rules applicable?
An HRA is a Health Reimbursement Account that may be implemented typically along with a high deductible health plan. It is funded solely by the employer.
If an employer sponsors an HRA and a fully insured plan then the fee is assessed on both plans. The employer must pay the fee related to the HRA. The insurance carrier will pay the fee for the fully insured plan.
The fee is based only on participant count not covered lives.
What is an FSA and are there special rules applicable?
An FSA is a flexible spending account that may be utilized for medical expense reimbursement and is a part of a cafeteria plan. An FSA is subject to the fee if the employer contribution exceeds the employee’s contribution. If an employer sponsors an FSA and fully insured plan then the fee is assessed on both plans. The employer must pay the fee related to the FSA utilizing the participant count method. If the employer sponsors both an FSA and HRA participants are counted only once if in both plans.
How is the fee reported and when is it due?
The fee is reported on Form 720 and may be paid by check or electronically no later than July 31 of each year for plans ending the prior calendar year until 2019.
Are there penalties for late filing and payment of the fee?
Yes. However, the penalties are waived if the employer can provide reasonable cause.
Who should be contacted with questions or for completion of Form 720?
The employer should contact their health insurance agent or carrier if they are not certain as to who is responsible for paying the fee.
For questions related to the PCORI fees or for completion of Form 720, you may contact us here.