The IRS has just released IRS Notice 2022-4
which announced the annual update to PCORI fees. PCORI fees were instituted as part of the ACA and fund the Patient-Centered Outcomes Research Institute. The new fee applies for health plan years ending on or after October 1, 2021, and before October 1, 2022 (which includes 2021 calendar year plans). The fee increased by $0.13 to $2.79 per covered individual.
PCORI fees are based on the average number of lives (not employees) covered by a health plan or policy.
For 2021 plans, fees are to be reported and paid annually to the IRS by August 1, 2022, via the second quarter Form 720
. (Normally, the deadline is July 31st, but this year it falls on a Sunday.)
10-Year Extension of PCORI Fees
Originally, PCORI fees were set to sunset plan years ending after September 2019. However, Congress extended these fees for an additional 10 years (through September 30, 2029) as part of the Further Consolidated Appropriations Act of 2020.
Which Plans Are Subject?
It is generally known that Employer sponsored health plans are subject to the PCORI fees, but common questions exist as to who “pays” the fee from a practical standpoint and which plans are subject to the fees. The following is a high-level overview, as well as a link to a detailed chart, put together by the IRS which addresses essentially every scenario:
- Fully Insured Plans: Paid and filed by the insurance carrier (fees subsumed in premiums)
- Self-Insured Plans: Paid and filed by the employer plan sponsor
- HRA Plans (Integrated with Fully Insured Health Plan): If integrated with fully insured plan, Employer must pay and file (because it is considered a stand-alone self-funded plan)
- HRA Plans (Integrated with Self-Insured Health Plan): No payment or filing required (because it is considered part of the underlying self-funded plan)
- HRA Plans (EBHRA): Paid and filed by Employer plan sponsor
- COBRA Participants: COBRA participants are to be counted as part of the underlying participant count of the health plan. Who pays and files for COBRA participants follows the process outlined above for fully insured or self-insured plans.
- Stop-Loss Policies: No payment or filing requirement
- Detailed IRS Listing
Calculating PCORI Fees
The IRS provides employers with several options for determining the average number of covered lives under their plan. Note that the fee is not calculated based on the number of employees covered under the plan. Rather, each employee, spouse and child dependent covered by the health plan is counted. The PCORI fee is sometimes known as a “Belly Button” fee because it is calculated by counting each belly button, not each employee. The IRS has stated employers may use any of the following methods to calculate the average number of covered lives under their plan:
- Actual Count Method: Add the total of lives covered for each day of the year and divide by the total number of days in the plan year. (This is a cumbersome method and used by very few employers.)
- Snapshot Method: Add the total lives covered on one date in each quarter of the plan year. Average the totals for each of the four dates.
- Snapshot Factor Method: Similar to the snapshot method, on one date each quarter, count participants with self-only coverage as one life and count those with coverage other than self-only as 2.35 lives. Average the totals for each of the four dates.
- Form 5500 Method: Use a reasonable formula to approximate the actual lives covered that includes the number of participants reported on the Form 5500 for the plan year. Typically, the average of the number of participants on the first day and the last day of the plan year is used. (This method cannot be used with 5500 extensions.)
Reporting and Paying the Fee
PCORI fees are reported and paid as part of the second quarter Form 720
. The Form 720 is typically filed quarterly. However, PCORI fees are reported and paid annually, and fees are “dropped into” the second quarter’s filing of Form 720. Payment is due no later than July 31 of the calendar year immediately following the last day of the plan year. For example, PCORI fees for calendar year 2021 plans are due on July 31, 2022. Plan sponsors who must pay the PCORI fee but are not otherwise required to report any other liabilities on Form 720 are only required file Form 720 only once a year (for the second quarter). No other filing is required in the first, third or fourth quarters of the year. Deposits are not required for PCORI fees, so plan sponsors are not required to pay the fee using EFTPS.
Vita clients can expect to receive communication from their account team to assist in the calculation of populations and fees due.
Please see the Instructions for Form 720
for more details on how to fill out the form and calculate the fee.