PCORI Trust Fund-Fees

Fees on Plans and Policies for the Patient-Centered Outcomes Research Trust Fund

The Patient Protection and Affordable Care Act (the Act) imposes a new Patient-Centered Outcomes Research Institute (PCORI) fee, formerly the comparative effectiveness research fee, on plan sponsors and issuers of individual and group policies.  The first year of the fee is $1 per covered life per year, the second year the fee adjusts to $2 per covered life and then it’s indexed to national health expenditures thereafter until it ends in 2019.

On April 17, 2012, the IRS proposed regulations that provide guidance on calculating the fee.

While the fees are in effect now, plans will have ample time to calculate and pay the fees.

The fee begins in 2012 and then phases out in 2019.For policy or plan years ending after September 30, 2012, issuers and employers sponsoring certain group health plans must pay a fee of $1 per covered life per year.  The fee adjusts to $2 per covered life for policy or plan years ending October 1, 2013, through September 30, 2014.  For policy or plan years ending after September 30, 2014, the dollar amount in effect for such policy or plan year shall be adjusted by the Secretary of Treasury based on the percentage increase in the projected per capita amount of national health expenditures.  The fee will not apply to policy or plan years ending after September 30, 2019.

Which plans are subject to the fees?

Fully-insured and self-funded group health and accident plans are subject to the fees, as well as individual fully-insured policies.  See below for more detail on which plans and policies are subject to the fees. 

How will the fees be used?

The fees will be used to fund the Patient-Centered Outcomes Research Institute, which was established under ACA to assist patients, clinicians, purchasers, and policymakers in making informed health decisions by advancing the quality and relevance of evidence-based medicine through the synthesis and dissemination of comparative clinical effectiveness research findings.  ACA specifically prohibits the Secretary of HHS from using the evidence or findings of the research in determining coverage, reimbursement, or incentive programs unless it is through a transparent process, which includes public comment.  HHS is prohibited from denying coverage of items or services solely on the basis of comparative clinical effectiveness research.

When is the fee and information return due?

The fee is payable when the information return is due.  An information return that reports liability for the fee must be filed by July 31 of the calendar year immediately following the last day of the plan year.  For example, a return that reports liability for the fee imposed for the year ending on December 31, 2012, must be filed by July 31, 2013.  For another example, a return that reports liability for the fee imposed for the plan year ending on January 31, 2013, must be filed by July 31, 2014.

The Form 720, “Quarterly Federal Excise Tax Return,” is amended to provide that plan sponsors will report and pay these fees only once a year on Form 720.  A person that files a Form 720 only to report liability for these fees is not required to file Form 720 at other times during a year.  A Form 720 return will generally cover plan years that end during the preceding calendar year.  The instructions for Form 720 require that the filer (the plan sponsor, or issuer) have an Employer Identification Number (EIN) to use in filing.

Who is liable for the fee?

For a self-funded plan, the plan sponsor is the person responsible for the payment of the fee.  For multiemployer plans, the joint board of trustees is the plan sponsor.  For a MEWA, the committee is the plan sponsor.

Section 4376(b)(2) provides that in the case of a plan established or maintained by a single employer, the plan sponsor is the employer.  Section 4376 does not contain rules that would treat related entities as a single entity.  Therefore, a plan that is sponsored by multiple related employers is considered a plan that is established by two or more employers for purposes of the fee.

In the case of a plan maintained by two or more employers, the proposed regulations provide that the plan sponsor is the person identified as the plan sponsor in the plan document.  The plan also has the option to designate a plan sponsor solely for purposes of paying the fee.  According to the rule, if the identity of the plan sponsor is unclear, the plan sponsor is each employer that maintains the plan (with respect to employees of that employer) and each employer would be required to file its own Form 720, reflecting the fee applicable to that employer’s employees.

For a fully-insured plan, the insurer is responsible for paying the fee.

Stop-loss policies are not subject to the fee.

Are governmental entities subject to the fee?

Generally, yes.  Governmental entities are subject to the fees, unless the plan qualifies as an exempt governmental program.  Governmental programs include a program established by Federal law for providing medical care to individuals or their spouse or dependents by reason of such individuals being (or having been) members of the Armed Forces of the United States, as well as a program established by Federal law for providing medical care to members of Indian tribes (see below for more on Indian tribal plans).

How are plans and policies defined for purposes of the fee?

The proposed regulations define an applicable self-funded plan as a plan that is established or maintained by a plan sponsor for the benefit of employees, former employees, members, former members, or other eligible individuals to provide accident and health coverage.  This includes retiree-only plans.

A self-funded plan does not include a plan of a Federally recognized Indian tribal government that provides coverage only to tribal members that are not employees of the Indian tribal government, unless the plan otherwise falls within one of the statutory definitions of an applicable self-funded plan.

Are HRAs subject to the fees?

Multiple self-funded arrangements established and maintained by the same plan sponsor and with the same plan year are subject to a single fee.  If a health reimbursement arrangement (HRA) is integrated with another self-funded plan that provides major medical coverage, and the HRA and the major medical plan have the same plan sponsor, the HRA is not subject to a separate fee.  Whether or not the HRA and the major medical plan are consolidated into one plan document appears to be irrelevant.

HRAs that are integrated with insured group health plans are given different treatment.  Section 4375 imposes a separate fee on the issuer of a health insurance policy.  An HRA that is integrated with an insured group health plan is subject to a fee, as well as the insurer of the group health plan, even though the HRA and the insured group health plan are maintained by the same plan sponsor.  Since availability of lives under an HRA is recognized as being a potential issue, the proposed regulation permits the plan sponsor to assume one covered life for each employee with an HRA.

Are health FSAs subject to the fees?

Health flexible spending accounts (FSAs) that satisfy the definition of “excepted benefits” under ERISA are not subject to the fees.  Most FSAs satisfy the definition of “excepted benefits.”

If the only plan maintained by the plan sponsor is an FSA that is not an “excepted benefit,” then the plan sponsor may treat each participant’s health FSA as covering a single covered life (and therefore the plan sponsor is not required to include any dependents as covered lives).

FSAs are “excepted benefits” for a group of participants only if they satisfy the following two requirements:

1)      Other group health plan coverage, not limited to “excepted benefits,” is made available for the year to the participants by reason of their employment; and

2)      The arrangement is structured so that the maximum benefit payable to any participant for a year cannot exceed two times the participant’s salary reduction election under the arrangement for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election).

Thus, the health FSA is an excepted benefit if:

  • the employer does not make any contributions to the FSA,
  • the employer makes a dollar-for-dollar match to the FSA, or
  • the employee contributes no more than $500 to the FSA.

Health Savings Accounts and Archer MSAs are generally neither health insurance policies nor self-funded plans and thus are not subject to these new taxes.

Are EAPs and wellness arrangements subject to the fees?

EAPs, disease management programs and wellness programs that do not provide significant medical care benefits are not subject to the fees.

How is the fee calculated?

For self-funded plans, the fee imposed on a plan sponsor is based on the average number of lives (participants and dependents) covered under the plan.

The proposed regulations offer a choice of three alternative methods to determine the average number of lives.

Three Alternative Methods

Actual Count Method – A plan sponsor may determine the average number of lives covered under the plan for the plan year by calculating the sum of the lives covered each day of the plan year and dividing that sum by the number of days in the plan year.

Snapshot Method – A plan sponsor may determine the average number of lives covered under the plan for the plan year by adding the totals of lives covered on one date in each quarter, or an equal number of dates for each quarter, and dividing the total by the number of dates on which a count was made.  (BPA will assist in calculating the average lives in the above scenario.   Please contact the Marketing Department for assistance.)  For those plans that do not track the number of dependents, a “snapshot factor method” is available.  Under the “snapshot factor method,” the number of lives covered on a date is equal to the sum of the number of participants with self-only coverage on that date, plus the product of the number of participants with coverage other than self-only coverage on the date and 2.35.

Note: The Treasury Department and IRS developed the 2.35 dependency factor in consultation with economists and plan sponsors.

See the proposed regulation for examples demonstrating how to run the calculation.  §46.4376-1(c).

Form 5500 Method – The proposed rule sets forth a method to determine the average number of lives using information from the 5500 Form, with adjustments for dependents.



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