PCORI Fee Filing Reminder
Overview
With the release of IRS Notice 2016-64, issued on Nov. 4, 2016, the IRS provided that the PCORI fee (Patient-Centered Outcomes Research Institute fee) also called the CERF fee (Comparative Effectiveness Research Fee) for plan years ending on or after Oct. 1, 2016, and before Oct. 1, 2017, including 2016 calendar year plans, is $2.26 per each person covered under the applicable health plan, up from $2.17 for the previous plan year.
The fee applies on the first day of the policy/plan year beginning on or after October 2, 2011 and continues to apply through policy/plan years ending before October 1, 2019. (These dates are based upon the federal government’s fiscal year of October 1 through September 30.)
The fee is classified as a tax, and it will be reported and paid to the IRS via Form 720 Quarterly Federal Excise Tax Return, which was revised to accommodate this annual tax.
The fee is based on the average covered lives for the applicable 12-month policy/plan year, and is payable on July 31 of the calendar year that follows the year in which the policy/plan year ends.
IRS Form Form 720 and Instructions, click HERE.
What Employers and Plans are Affected by the Comparative Effectiveness Research Fee?
- All insured group medical plans, including minimum premium plans, issued by one of our U.S. underwriting companies except where exempted by the legislation
- Self-funded group medical plans, maintained in the United States
- Individual/family plans
- Standalone behavioral health plans (insured and self-funded)
- Standalone pharmacy plans (insured and self-funded)
- Limited medical plans (also known as Voluntary plans)
- Medicare Surround and Medicare Expand insurance policies
- Retiree-only plans
- Health Reimbursement Accounts (HRAs)
- Flexible Spending Accounts (FSAs) that do not qualify as “excepted benefits” under HIPAA
- Cigna Global Health Benefits inpatriate plans, issued by one of our U.S. underwriting companies
What Employers and Plans are Exempted from the Comparative Effectiveness Research Fee?
- Expatriate coverage provided primarily for employees who work and reside outside the U.S.
- S.-based “trailing dependents” of expatriate employees who live overseas
- Exempt FSA plans
- Medicare Parts A-D coverage
- Medicaid coverage
- Health Savings Accounts (HSAs)
- Standalone dental plans
- Standalone vision plans
- Employee Assistance Plans (EAPs)
Filing Requirements
Insured medical plans
Per the regulations, the carrier will pay the required fee with respect to its insurance policies and HMO service agreements. The fee will be reflected in your premium. You will not need to do anything for your insured/HMO medical plan to be compliant. The carrier will file the 720 Tax Form for you.
Health Reimbursement Accounts (HRAs) and non-exempt Flexible Spending Accounts (FSAs)
HRAs and non-exempt FSAs are considered self-funded group health plans. As a plan sponsor, you will be required to pay the fee for employees covered under those plans. An FSA is exempt if it is an “excepted benefit” as defined in the tax code and the maximum benefit payable to any participant does not exceed two times the participant’s salary reduction election for the FSA for the year (or, if greater, $500 plus the amount of the participant’s salary reduction election).
If your HRA and FSA have the same plan year as your self-funded medical plan, then both plans are treated as a single group health plan and only one fee is payable by you. However, if your medical plan is insured, the carrier will pay the fee for the insurance policy, but you will pay the fee for your HRA or FSA. For HRAs and FSAs, the plan sponsor can treat each plan as covering a single covered life.
Global Health Benefits Plans
Fully insured expatriate medical plans
The final regulations indicate that most expatriate plans (i.e., those specifically designed to cover primarily employees working outside the U.S.) are exempt from the CERF. The fee may apply to some plans covering inpatriates. In the limited cases when the fee may apply, CGHB will make required payments for impacted fully-insured clients. You will not need to do anything for your medical plan to be compliant.
Self-funded expatriate medical plans
The final regulations indicate that most expatriate plans (i.e., those specifically designed to cover primarily employees working outside the U.S.) are exempt from the CERF. The fee may apply to some plans covering inpatriates. Self-funded expatriate plans should consult their legal and tax consultants to determine whether their plans are subject to the CERF. In the limited cases when the fee may apply, the plan sponsor is responsible for paying the fee. Per the legislation, administrators are not permitted to calculate or pay the fee on the plan’s behalf.
Short Plan Years
The IRS issued FAQs that address how the PCORI fee works with a self-insured health plan on a short plan year.
Does the PCOR fee apply to an applicable self-insured health plan that has a short plan year?
Yes, the PCOR fee applies to a short plan year of an applicable self-insured health plan. A short plan year is a plan year that spans fewer than 12 months and may occur for a number of reasons.
For example, a newly established applicable self-insured health plan that operates using a calendar year has a short plan year as its first year if it was established and began operating beginning on a day other than Jan. 1. Similarly, a plan that operates with a fiscal plan year experiences a short plan year when its plan year is changed to a calendar year plan year.
What is the PCORI fee for the short plan year?
The PCOR fee for the short plan year of an applicable self-insured health plan is equal to the average number of lives covered during that plan year multiplied by the applicable dollar amount for that plan year. Thus, for example, the PCOR fee for an applicable self-insured health plan that has a short plan year that starts on April 1, 2016, and ends on Dec. 31, 2016, is equal to the average number of lives covered for April through Dec. 31, 2016, multiplied by $2.26 (the applicable dollar amount for plan years ending on or
after Oct. 1, 2016, but before Oct. 1, 2017).
Calculation Methods
Actual Count Method
The actual count method may be used by all contributing entities. This method involves adding the total number of lives (enrollees) covered for each day of the first nine months of the benefit year and dividing that total by the number of days in those nine months.
Snapshot Count Method
The snapshot count method may be used by all contributing entities. This method involves adding the total number of lives (enrollees) covered on any date during the same corresponding month in each of the first three quarters of the benefit year (or an equal number of dates for each of the first three quarters) and dividing the total by the number of dates on which a count was made.
The same months must be used for each quarter (for example, Jan., April and July) and the date used for the second and third quarter must fall within the same week of the quarter as the corresponding date used for the first quarter. CMS noted that the contributing entity may use last day of each month, regardless of the actual week that the day falls in.
Snapshot Factor Method
The snapshot factor method may only be used by self-insured group health plans and multiple group health plans maintained by the same plan sponsor that do not include an insured plan. Like the snapshot count method, this method involves adding the total number of lives (enrollees) covered on any date during the same corresponding month in each of the first three quarters of the benefit year (or an equal number of dates for each of the first three quarters), and dividing that total by the number of dates on which a count was made.
The same months must be used for each quarter (for example, March, June and Sept.) and the date used for the second and third quarters must fall within the same week of the quarter as the corresponding date used for the first quarter. CMS noted that the contributing entity may use last day of each month, regardless of the actual week that the day falls in.
Under this method, the number of lives covered on a date is calculated by adding: (1) the number of participants with self-only coverage on the date; and (2) the product of the number of participants with coverage other than self-only coverage on the date and a factor of 2.35.
A “participant” does not include covered dependents. A self-only policy is major medical coverage offered by a self-insured group health plan that only covers an individual but not his or her spouse, dependents or family members. An other than self-only policy is major medical coverage offered by a self-insured group health plan for an individual plus one or more family members.
Member Months or State Form Method
The member months or state form method may only be used by a health insurance issuer. This method involves multiplying the average number of policies in effect for the first nine months of the benefit year by the ratio of covered lives per policy in effect, calculated using data included in the prior National Association of Insurance Commissioners Supplemental Health Care Exhibit (Exhibit) that some issuers are required to file. Issuers that are not required to file an Exhibit may use data from equivalent state insurance filings for the most recent time period.
Form 5500 Method
The Form 5500 method may only be used by self-insured group health plans. This method requires a contributing entity to use the number of lives (enrollees) covered for the most current plan year, calculated based upon the “Annual Return/Report of Employee Benefit Plan” filed with the Department of Labor (Form 5500) for the last applicable time period.
For purposes of this counting method:
The number of lives covered for the plan year for a plan offering only self-only coverage equals the sum of the total participants covered at the beginning and end of the plan year (as reported on lines 5 and 6(a)-(c) of Form 5500) divided by 2.
The number of lives covered for the plan year for a plan offering self-only coverage and other than self-only coverage equals the sum of the total participants covered at the beginning and the end of the plan year, as reported on lines 5 and 6(a)-(c) of the Form 5500.
In the Notice of Benefit and Payment Parameters Final Rule, HHS clarifies the Form 5500 counting method by changing the references from “benefit year” to “plan year” to clarify that a self-insured group health plan may use the enrollment set forth in the Form 5500 even if the group health plan is based on a plan year other than the benefit year (defined as a calendar year for which a health plan provides coverage for health benefits).
CMS clarified that a plan may use the number of lives covered for the most current plan year calculated based upon the Form 5500 filed for the last applicable time period. Therefore, if the most current plan year calculated based upon the Form 5500 filed for the last applicable time period represents a period of time during the 2013 calendar year, the plan may use this period in determining the plan’s annual enrollment count for the 2014 benefit year for the purpose of reinsurance contributions.
Are the Fees Deductible?
The Internal Revenue Service (IRS) issued a set of FAQs to address the tax treatment of the ACA’s reinsurance fees. Taxpayers generally may deduct ordinary and necessary business expenses, including most fees and taxes paid to the government. However, under the rules of the Internal Revenue Code (Code), deductions for ordinary and necessary business expenses may be disallowed, limited or deferred in some circumstances.
According to the FAQs, a sponsor of a self-insured group health plan that pays reinsurance fees may treat the fees as ordinary and necessary business expenses, subject to any applicable disallowances or limitations under the Code. This tax treatment applies whether the contributions are made directly by the plan sponsor or through a TPA or ASO contractor.
