Late last year, the IRS raised the fee that insurers or sponsors of self-insured health plans pay annually to fund the Federal Trust Fund of the Patient-Oriented Research Institute (PCORI). The new fee is $ 2.79 per person covered, with other fees described below.
The fee is usually due on July 31 each year, but for 2022 the fee is due on August 1, as July 31 falls on a Sunday this year.
The fee refers to health plans for the previous calendar year. According to IRS Notice 2022-04, the annual fee adjustments are as follows:
For planning years ended on or after 1 October 2021 and before 1 October 2022 (including plans for a calendar year), the fee is
$ 2.79 per person covered by the plan – employees and dependents – from $ 2.66 a year earlier.
For planning years ended on or after 1 October 2020 and before 1 October 2021, the fee is
$ 2.66 per person compared to $ 2.54 a year earlier.
However, according to an update from the IRS Q&A on 4 March 2022 on PCORI fees:
- After September 20, 2021 and before October 1, 2022 the applicable amount in dollars is $ 2.79.
- After September 30, 2020 and before October 1, 2021 the applicable amount in dollars is $ 2.66.
Self-employed employers pay the annual PCORI fee directly to the IRS. For fully insured employers, the fee is paid by the insurance provider, although costs may be included in premium increases.
Fees are accounted for and paid annually by filing Form 720 with the IRS (Quarterly Federal Excise Tax Return) and are due by July 31 of the year following the end of the planning year, unless that date falls on a weekend or federal holiday.
The fee applies until 2029
The Affordable Care Act created the funding fee for a Washington-based institute that conducts research on the comparative effectiveness of medical treatments. Initially, the fee was only to apply to plans with deadlines ending after 30 September 2012 and before 1 October 2019. However, as part of the Bipartisan Budget Act 2019, the annual submission of PCORI and fees were extended by additional 10 years until 2029
“The PCORI fee is calculated using the average number of lives covered by the policy or plan and the applicable dollar amount for that year or planning year,” said William Sweetnam, legislative and technical director of the Flexible Employers’ Council for Flexible Compensation in Washington. , DC “The applicable amount in dollars was $ 2 when the fee was passed as part of the Affordable Care Act and this amount is increased annually based on increases in projected per capita national health expenditures.”
Calculation of PCORI fees
The IRS provides self-employed employers with options for determining the average number of people enrolled in the plan, which the IRS calls covered lives – employees, spouses and dependents covered by the health plan. According to the IRS, plan sponsors can use any of the following methods to calculate the average number of lives covered by the plan:
- The actual method of counting. Plan sponsors add the total number of lives covered for each day of the year divided by the total number of days in the plan year.
- The snapshot method. Sponsors add the total life covered on one date in each quarter of the planning year.
- The method of the snapshot factor. Similar to the snapshot method, the number of lives covered for each day can be determined by counting the actual number of lives covered that day or by treating those covered only for one life and those covered differently. by itself as 2.35 lives.
- The Form 5500 method. Plan sponsors use a formula that includes the number of participants reported on Form 5500 for the year of the plan.
The IRS has published a chart showing the application of PCORI fees to common types of health coverage.
FSA, HRAs and other benefits
In general, Flexicurity Accounts (FSAs) are considered exempt benefits and therefore do not require a fee for Form 720 and PCORI, “unless the employer – not just the employee – makes contributions to them in excess of less than $ 500 a year, or one dollar, coincides with the employee’s contribution to the dollar, “said Gary Kushner, president and CEO of Kushner & Company, a consulting firm on HR strategy and employee benefits in Portage, Michigan. “In this case, these FSAs must also be included in the submission of Form 720” with appropriate payment of enrollment.
For health reimbursement agreements (HRAs), employers must “first consider an integrated group health plan,” Kushner advised. “If [health] the plan is fully insured, then the employer must file 720 “and pay the fee for each employee with an employer-funded HRA. The fee is paid per employee and spouses and children covered by the fully insured health plan are not included in the fee calculation .
“However, if the basic group health plan is self-financing, then it is not necessary to submit a separate 720 for the integrated HRA, but rather an application and a fee for the self-financing group health plan,” Kushner said. In this case, the fee is calculated based on the life covered, not just the employees.
While the insurance carrier is responsible for paying the PCORI fee for a fully insured medical plan, “the employer is responsible for paying the HOR’s PCORI fee,” writes Karen Hooper, vice president and senior compliance manager at Newfront, an insurance and financial services company. San Francisco. “In this scenario, the IRS is essentially halved, imposing the PCORI fee on the same lives covered by both top medical professionals and the HRA. In recognition of this, the HRA PCORI fee paid by the employer is determined by counting only one life per employee participating in the plan (and not on dependents). “
The PCORI fee does not apply to participants in health savings accounts (HSAs), as HSAs are individual accounts and not group health plans.
The fee also does not apply to dental and vision coverage that is exempt (whether through a stand-alone insurance policy or under the “non-integral” “self-insurance test”), Hooper explained, and virtually all dental and vision plans are excluded benefits. “
Missed payment deadlines
“An employer who disregards the reporting and payment of the PCORI fee by the due date must, immediately after becoming aware of the supervision, submit Form 720 and pay the fee (or submit an adjusted Form 720 to report and pay the fee if the employer is submitted the form on time for other reasons, but failed to report and pay the PCORI fee), ”advises Ethan McWilliams, senior compliance analyst at Lockton, a Kansas City, Missouri-based brokerage and services firm.
Employers in this situation must be sure to use the form for the relevant tax year.
“The IRS may impose interest and penalties for late filing and payment, but has the right to waive penalties for a valid reason,” he said.
The amount of the PCORI fee in dollars is adjusted annually to reflect inflation in national health expenditures, as determined by the Minister of Health and Human Services (HHS).
“Due to the fact that [HHS] does not publish updated tables of national health spending for 2021, this year’s fees are based on forecasts set out in the tables for 2020 “, according to a client signal from the law firm Fraser Trebilcock in Lansing, Michigan. “As such, the plans must pay close attention to changes in fees for next year,” which could reflect years of health inflation.
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