PPACA imposes a new “Patient-Centered Outcomes Research Institute” (PCORI) fee on plan sponsors and issuers of individual and group policies. For plan years ending after Sept. 30, 2012, issuers and employers sponsoring certain group health plans must pay a fee of $1 per covered life per year. The fee then rises to $2 per covered life for policy or plan years ending Oct. 1, 2013, through Sept. 30, 2014. After that, the fee will be adjusted by the Secretary of Treasury. Supposedly it ends after Sept. 30, 2019. Insurance policy issuers or plan sponsors will be responsible for paying the fee.
The IRS has provided some general answers to questions about PCORI fees, but let’s consider some basics. For sponsors of insured plans, they will likely just pay the fee through an increase directly from the carriers. But for self-funded or self-insured plans, the plan sponsor has to calculate the fee and pay it. Calculating it can be tricky. Plan sponsors must use the same method consistently for the duration of any year. Essentially there are three ways to calculate how to pay your fee:
- The Actual Count method: count the total covered lives for each day of the plan year and divide by the number of days in the plan year.
- The Snapshot Method: count the total number of covered lives on a specific day (or days) in each quarter and divide the total by the number of dates on which a count was made. Remember, be consistent so pick the same day or days each quarter. But be wary because there is something called the “snapshot factor” that applies when you have a plan with “self-only” coverage. In the case of self-only coverage, (1) count the number of participants with self-only coverage, and then (2) count the number of participants with coverage other than self-only coverage multiplied by 2.35.
- The 5500 Method: For plans with self-only coverage, determine the average number of participants by combining the total number of participants at the beginning of the plan year with the total number of participants at the end of the plan year as reported on the Form 5500 and divide by 2. If your plan offers self-only AND other coverage, the average number of total lives is the sum of total participants covered at the beginning and the end of the plan year, as reported on the Form 5500.
Of course there are always snags in the process. If you sponsor a self-funded HRA and an insured health plan, the HRA is subject to a fee as well as the insured plan. Basically this means the fee is paid twice. But, if both the HRA and the health plan are self-funded, then the plans are treated as one plan and there is only one PCORI fee due. However in HRA, you only count the participant as one life and you don’t have to count all of the possible dependents. FSAs and HSAs are exempt from fees. So are plans that provide only “excepted benefits,” such as plans that offer only vision or dental benefits. Also, EAP plans, disease management programs and wellness programs are not subject to the PCORI fee if these programs do not provide significant benefits in the nature of medical care or treatment.
Also, remember that the PCORI fees are separate from the Reinsurance Fee of $63 a year per covered life that is also due. Fortunately it uses a similar counting method, but it still adds up. So pay your fees if you have to and make sure to confirm with you benefit professionals about what your plan (or more importantly, you as plan sponsor) owes.