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Action Required: IRS Form 720 and PCORI Fee due July 31, 2013

Contact: Peter Alwardt
Contact: Christine Faris

June 11, 2013

By Christine Faris

Faris, ChristineInsight for Employers with Self-Insured Health Plans, HRAs, Post-Retirement Medical, and FSAs

The Patient-Centered Outcomes Research Institute (“PCORI”) was established as part of the Affordable Care Act of 2010 to “assist patients, clinicians, purchasers, and policy-makers in making informed health decisions.”  It is funded, in part, by an annual fee on plan sponsors of “applicable self-insured health plans.”  This means that employers with self-insured health plans including certain HRA, FSA and post-retirement medical arrangements are subject to the fee.

REPORTING AND TIMING
 
The PCORI fee applies to policy years and plan years ending after September 30, 2012, and must be paid and reported by annually on Form 720, Quarterly Federal Excise Tax Return, by July 31 of the calendar year immediately following the last day of the applicable policy or plan year.  The first due date for filing Form 720 and paying the fee is July 31, 2013, and is for policy or plan years ending after September 30, 2012 and on or before December 31, 2012.
 
SELF-INSURED HEALTH PLANS SUBJECT TO THE PCORI FEE

The PCORI fee applies to plan sponsors of “applicable self-insured health plans” (also commonly referred to as self-funded or self-insured plans). Self-insured plans include any plan offering health or accident coverage that is not provided by an insurance company, is funded by employer and/or employee contributions and payments, and is established and maintained for the benefit of current or former employees.

HEALTH REIMBURSEMENT ARRANGEMENTS, POST-RETIREMENT MEDICAL AND HEALTH FLEXIBLE SAVINGS ARRANGEMENTS

Stand-alone health reimbursement arrangements (“HRAs”) are subject to the PCORI fees.  However, the PCORI fees will not apply to an HRA that is integrated with another self-insured medical plan provided the HRA and the self-insured plan are established and maintained by the same plan sponsor and have the same plan year.

Retiree medical plans and retiree-only plans are treated as self-insured plans for the purpose of the PCORI fees.

A health flexible spending account (“FSA”) that offers other group health coverage not limited to excepted benefits is not subject to the PCORI fees provided the health FSA is structured so that the maximum benefit payable under the health FSA to any participant cannot exceed two times the participant’s salary reduction election under the health FSA for the year (or, if greater, $500 plus the amount of the employee’s salary reduction election for the Health FSA for the year).  Health FSAs funded exclusively by employee salary reduction contributions will by definition satisfy this requirement.

PLANS NOT SUBJECT TO THE PCORI FEE

The PCORI fee does not apply to certain forms of coverage.  Excepted benefits include, for example, stand-alone dental and vision plans, accident-only coverage, disability income coverage, liability insurance, workers’ compensation coverage, credit-only insurance or coverage for on-site medical clinics.

In addition, the PCORI fee does not apply to health savings accounts (“HSAs”), self-insured plans for employees working and residing outside of the United States, stop-loss policies, and indemnity reinsurance policies.

Employee assistance programs (“EAPs”), disease management programs, and wellness programs that do not provide significant benefits in the nature of medical care or treatment are not subject to PCORI fees.

CALCULATION OF THE FEE

For plan years ending on or before September 30, 2013, the PCORI fee is $1 per person for the “average number of lives covered.” The fee increases to $2 per person for the plan or policy year ending after September 30, 2013. Under current rules, the PCORI fee will no longer apply to policy and plan years ending after September 30, 2019.

DETERMINATION OF “AVERAGE NUMBER OF LIVES COVERED”

Plan sponsors must use the same method consistently during a plan year.  However, a plan sponsor may use a different method from one plan year to the next.

Plan sponsors may also choose from one of four methods to calculate the average number of lives covered under an applicable self-insured health plan:

  1. Actual Count Method
  2. Snapshot Count Method
  3. Snapshot Factor Method
  4. Form 5500 Method

A special counting rule applies to health FSAs and HRAs.

OVERLAPPING PLANS

When accident and health coverage is provided to one individual through more than one self-insured arrangement, special rules clarify how the fee applies.

Multiple self-insured arrangements established and maintained by the same plan sponsor and with the same plan year are subject to a single fee.  However, a single fee does not apply if the arrangements or plans have different plan years or different plan sponsors.

NEXT STEPS

Plan sponsors of Applicable Self-Insured Health Plans should take an inventory of their plans, with plan years ending between October 1, 2012 and December 31, 2012, to determine which plans are subject to the PCORI Fee due by July 31, 2013.  Next, the plan sponsor should determine the average number of lives covered.  Finally, the plan sponsor should complete and file Form 720 and with the fee.

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