Under the ACA, all medical plans are responsible for paying the Patient-Centered Outcomes Research fee to the IRS, based on the number of plan participants. If the plan is insured, the insurance carrier pays the fee on behalf of the policyholder. If the plan is self-insured, the employer/plan sponsor must file the Form 720 and pay the fee to the IRS directly.
Which self-insured plans must pay the fee directly to the IRS?
All self-insured medical plans, including health FSAs and HRAs, must pay the fee unless the plan is either primarily for employees working/residing outside of the U.S., or is considered an excepted-benefit.
- A health FSA is an excepted-benefit as long as the employer does not contribute more than $500/year to the accounts and offers another medical plan with non-excepted benefits.
- An HRA is an excepted-benefit if it only reimburses for excepted-benefits (e.g., limited-scope dental and vision expenses or long-term care coverage) and is not integrated with the group medical plan.
How much is the PCORI fee?
For plan years:
- Ending on or after Oct 1, 2012 and before Oct 1, 2013: $1.00 per covered life
- Ending on or after Oct 1, 2013 and before Oct 1, 2014: $2.00 per covered life
- Ending on or after Oct 1, 2014 and before Oct 1, 2015: $2.08 per covered life
- Ending on or after Oct 1, 2015 and before Oct 1, 2016: $2.17 per covered life
- Ending on or after Oct 1, 2016 and before Oct 1, 2017: $2.26 per covered life
- Ending on or after Oct 1, 2017 and before Oct 1, 2018: $2.39 per covered life
- Ending on or after Oct 1, 2018 and before Oct 1, 2019: $2.45 per covered life
The fee is indexed for each year, and ends in 2019.
Participating employees and dependents are counted as covered lives. For HRA and health FSA plans, just count each participating employee as a covered life.
How does the employer/plan sponsor pay the fee to the IRS?
Employers complete and file the Form 720 for the second quarter. The Form 720 and fees are due on July 31 of the calendar year following the last day of the plan year. If your medical plan year ended in 2018, your Form 720 is due by July 31, 2019.
The Form 720 and instructions are available on the IRS website:
Employers/plan sponsors need to complete:
- Company information and quarter ending “June 2019”
- Part II, IRS No. 133
- Column (a) – under “Applicable self-insured health plans”, enter “Avg. number of lives covered” in row (c) or (d), depending on end of plan year
- Column (c) – enter total Fee (lives x $)
- Tax column – enter the amount of the fee (from Column (c))
- Part II, Line 2 – enter Total Tax (from Tax column on No. 133)
- Part III, Line 3 – enter Total Tax (from Part II, Line 2)
- Part III, Line 10 – enter Balance Due (from Part III, Line 3)
- Signature section
- Pay electronically or complete the payment voucher (last page) with “2nd Quarter” checked to pay by check
- Send the form, along with check and payment voucher, to:
Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45999-0009
To calculate the “Avg. number of lives covered”, use one of the three methods listed on pages 8 and 9 of the instructions:
Actual count method – The total number of lives covered (employees and their covered family members or only employees if HRA or FSA) on each day of the plan year, divided by the total number of days in the plan year.
Snapshot method – At least one date during each month of each quarter. Dates in each quarter must be within 3 days of the dates for corresponding quarters.
Snapshot actual method – Total number of lives covered (employees and their covered family members or only employees if HRA or FSA) on each selected date, divided by the number of dates used.
Snapshot factor method – Number of participants with self-only coverage plus 2.35 times the number of participants with other than self-only coverage. (Do not use this method for HRA or FSA plans.)
Form 5500 method – Use participant counts from the 5500 for that plan for that year.
Plan with only self-only coverage – Add the total number of participants at the beginning and end of the plan year, and divide by 2 to get the average for the year.
Plan with self-only and dependent coverage – Add the total number of participants at the beginning and end of the plan year. (Do not use this method for HRA or FSA plans.)
How are participants counted when covered under more than one medical plan by the same employer?
HRA and insured plan: Not treated as a single plan, so the employer/plan sponsor pays the fees for the HRA and the carrier pays the fees for the insured plan. However, the employer/plan sponsor may count just employees as covered lives in the HRA, and disregard covered dependents.
HRA and other self-insured plan: Treated as a single plan for purposes of calculating the fee, so each participant (including dependents) is only counted once.
Multiple HRAs and an insured plan: The carrier still pays the fees for the insured plan. The HRAs may be treated as a single plan for purposes of calculating the fee, so each participant (disregarding covered dependents) is only counted once.