Under the Patient Protection and Affordable Care Act (PPACA), fees are assessed for some self-insured health plans. The Comparative Effectiveness Research Fee (CERF) is designed to help fund the Patient-Centered Outcomes Research Institute (PCORI), a nonprofit organization created to fund medical research that will provide patients and clinicians with the evidence-based information needed to make better-informed healthcare decisions.
Employers who sponsor self-funded health plans must pay a PCORI fee by July 31, 2017. Major medical plans are subject to the PCORI fee, including plans that are insured, self-funded, PPOs, HMOs, retiree-only medical plans and HRAs that are bundled with insured plans.
Employers who sponsor self-funded health plans must calculate and pay the fees using federal tax form 720 (the Quarterly Federal Excise Tax Return, which has been revised for use in payment of annual PCORI fees also.)
Employers who sponsor insured health plans are not required to take any action to pay the PCORI fees; instead, health insurers will pay the fee on behalf of the employer.
The fee amounts for the 2017 filing are as follows:
Filing and Payment Information
The PCORI fee is paid once a year, using Tax Form 720. The fee is paid using Tax Form 720 and is due annually on July 31 of the calendar year immediately following the last day of the plan year. For instance, for a plan year ending on or before December 31, 2016, the form must be filed by July 31, 2017. The fee must be paid at this time as well.
For self-funded plans, the plan sponsor is responsible to pay the fee. TPAs can help in calculating the number of covered lives, but the employer must actually file the Form 720 and is ultimately liable for ensuring the correct amount is paid in a timely fashion.
PCORI fees are not a permissible plan expense under ERISA, because by law they are imposed on the plan sponsor and not on the plan itself. This means that the PCORI fee must be paid by the plan sponsor and not from plan assets, because ERISA’s prohibited transaction rules prohibit the use of plan assets to pay expenses that are the employer’s obligation. Plan assets would include participant pre-tax contributions and trust assets.
Form 720 PCORI fee reporting instructions can be found through the following link: [http://www.irs.gov/pub/irs-pdf/i720.pdf] (see Part II for instructions)
The Form 720 can be filed with the IRS using the following methods:
How to Calculate the Number of “Covered Lives” For Sponsors of Self-insured Plans
Sponsors of self-insured plans may use any one of the following methods to determine the average number of covered lives on which the fee is calculated. Covered lives includes not only employees, but also covered spouses, dependents, retirees and COBRA qualified beneficiaries.
Actual count method
The plan would count the total covered individuals for each day of the year and divide that number by the total number of days in the plan year.
Snapshot method
The plan would count the number of covered employees on one date each quarter of the plan year and divide by four.
Snapshot factor method
The plan would count the number of covered employees plus 2.35, multiplied by the number of covered employees that also have at least one covered family member, and divide that number by four.
Form 5500 method
For plans that offer single coverage, the plan would add the number of participants recorded on Form 5500 for the start and end of the plan year and divide by two. If the plan offers coverage beyond self-only, then the plan would make the same calculation, but would not divide the number of participants by two.
Record keeping Requirements
The IRS may request documentation of how PCORI fees were calculated, so employers should keep records to show how they determined the number of covered lives and the fee amount to apply. There is no specific guidance on record retention for PCORI fees, but the Form 720 instructions do advise taxpayers to keep their returns and supporting documentation for at least four years from the date the tax return was due, or if later, the date it was paid or filed.
