The Affordable Care Act (ACA) established the Patient-Centered Outcomes Research Institute (PCORI) to explore the effectiveness of medical treatments. An associated fee is charged to health insurers/health plans to finance a portion of a trust fund in support of this non-profit institute. The PCORI fee is paid by health plan issuers for fully insured plans, and by employers/plan sponsors for self-funded plans. Excepted benefit plans, such as most Health Flexible Spending Accounts (FSAs), are not subject to the PCORI fee.
The Quarterly Federal Excise Tax Return, Form 720, used to report PCORI information to the Internal Revenue Service (IRS) must be filed by 7/31/2018. Although Form 720 is a quarterly return, it is filed annually for PCORI fee purposes, by July 31 of the year following the last day of policy/plan year.
The fee for policy/plan years ending October 1, 2017, through September 30, 2018, is the applicable rate of $2.39, multiplied by the average number of lives covered under the policy/plan.
The fee for policy/plan years ending October 1, 2018, through September 30, 2019, is the applicable rate of $2.45, multiplied by the average number of lives covered under the policy/plan.
The PCORI fee will not be assessed for plan years ending after September 30, 2019; the fee is nearing its end. For non-calendar-year plans that end between January 1, 2019 and September 30, 2019, however, there will be one last PCORI payment due by July 31, 2020. The PCORI fee was first assessed for plan years ending after September 30, 2012. The fee for the first plan year was $1/plan enrolle, and then indexed in subsequent years based on the increase in national health expenditures.
The PCORI fee is paid through the IRS’s Electronic Federal Tax Payment System (EFTPS).
Who Files?
For fully insured plans, the PCORI fee is paid by the health insurer, not the employer. Therefore the employer does not have to take action or file Form 720.
For self-insured plans, the employer/plan sponsor pays this fee. Therefore, IRS guidance states the PCORI fee is tax deductible for the employer/plan sponsor of self-insured plans as an ordinary and necessary business expense.
For detailed information on the PCORI fee, please review the IRS Patient-Centered Outcomes Research Trust Fund Questions and Answers.
For information on the types of insurance coverage or arrangements subject to the PCORI fee, please review Application of the Patient-Centered Outcomes Research Trust Fund Fee to Common Types of Health Coverage or Arrangements.
In most cases, your employer clients will not be responsible for reporting or paying the PCORI fee. An employer is responsible for the fee if it sponsors self-insured coverage or a health Flexible Spending Arrangement (Health FSA) that is not treated as an “excepted” benefit.
Exclusions
An excepted-benefit Health FSA is defined in the Internal Revenue Code, Section 106(c)(2), as meeting the following two conditions:
- Participants eligible for the Heath FSA must also be eligible for coverage under another non-excepted benefit group health plan, such as an ACA-compliant Group Medical Health Plan.
- The employer contributes between $0 and $500 in a flat contribution scenario into the employee’s FSA, or the employer contributes on a dollar-for-dollar match basis, equivalent to the participant’s election.
Almost all compliant Health FSAs meet the “excepted benefit” definition.
If an employer offers a Health FSA and is not 100% confident its plan is an excepted benefit, the employer should contact its FSA administrator to confirm.
If you have questions about PCORI or its effect on your clients, you can rely on your WBCompliance team for help. The team can be reached at compliancesupport@wordandbrown.com.
