The IRS is raising the fee that insurers or self-insured health plan sponsors will pay in 2021 to fund the federal Patient-Centered Outcomes Research Institute (PCORI) trust fund. The fee will be $2.66 per plan enrollee, up from $2.54 for the 2020 plan year, according to Notice 2020-84, which the IRS issued on Nov. 24. The annual fee must be paid to the IRS by July 31 for plan years ending between Oct. 1, 2020, and before Oct. 1, 2021, which includes calendar-year plans.
Self-insured employers pay the annual PCORI fee directly to the IRS. For fully insured employers, the fee is paid by the insurance provider, although the cost may be factored into premium increases.
Those sponsoring self-funded plans must remit the PCORI fee to the IRS along with an IRS Form 720. As of this writing, the IRS had not yet updated the form with the raised amount due in 2021.
Fee Applies Through 2029
The Affordable Care Act (ACA) created the fee to fund a Washington, D.C.-based institute that conducts research on the comparative effectiveness of medical treatments. The fee was originally to apply only to plans with terms ending after Sept. 30, 2012, and before Oct. 1, 2019. However, as part of the Bipartisan Budget Act of 2019, annual PCORI filing and fees were extended for an additional 10 years, through 2029.
Calculating PCORI Fees
The IRS provides self-insured employers with options for determining the average number of plan enrollees, which the IRS refers to as covered lives—employees, spouses and dependents covered by the health plan. According to the IRS, plan sponsors may use any of the following methods to calculate the average number of covered lives under the plan:
- The actual count method—Plan sponsors add the total of lives covered for each day of the year, divided by the total number of days in the plan year.
- The snapshot method—Plan sponsors add the total lives covered on one date in each quarter of the plan year.
- The Form 5500 method—Plan sponsors use a formula that includes the number of participants reported on the Form 5500 for the plan year.
Plans Subject to PCORI Fees
“In determining the number of covered lives, you must count anyone covered under your self-insured medical programs, including former employees (and their dependents) who participate under COBRA or other post-employment coverage,” explained Michigan-based law firm Warner Norcross & Judd. “You can treat all self-insured benefits as a single plan.”
Gary Kushner, president and CEO of Kushner & Company, an HR strategy and employee benefits consulting firm in Portage, Mich., wrote that “Generally, health care flexible spending accounts (FSAs) are not required to file a Form 720 unless the employer (and not just the employee) makes contributions to it that exceed the lesser of $500 annually or a dollar-for-dollar match of the employee’s contribution.”
For health reimbursement arrangements (HRAs), employers should “first look at the integrated group health plan,” Kushner said. If that plan is fully insured, the employer must file Form 720 and pay the annual fee for each employee with an employer-funded HRA for the applicable plan year. “In this case, the fee is paid per employee, not per covered life, so spouses and children covered by the health plan are not included in the fee calculation, he explained.
“If, however, the underlying group health plan is self-funded, then no separate 720 need be filed for the integrated HRA, but rather, one filing and fee for the self-funded group health plan is due” based on covered lives, not just employees, Kushner noted.
According to the IRS, which posted a chart showing the application of PCORI fees to common types of health coverage, the fee doesn’t apply to health savings account (HSA) participants, as HSAs are individual accounts, not group health plans.
[Need help with legal questions? Check out the new SHRM LegalNetwork.]