Comparative Effectiveness Tax (PCORI Fee) Information for Filing in July 2018

Overview

The Affordable Care Act (ACA) includes provisions to promote research by the Patient-Centered Outcomes Research Institute (PCORI) that will provide information on the relative strengths and weaknesses of various medical interventions. This initiative is being funded by a tax that must be paid by insurers and plan sponsors of self-funded health plans. Per IRS Guidance, for self-insured and/or self-funded plans ending in 2017, filing and payment must be submitted to the IRS by July 31, 2018. The fees owed in 2018 are as follows: 

• For plan years* ending on or after October 1, 2016, and before October 1, 2017: $2.26 per covered life

• For plan years* ending on or after October 1, 2017, and before October 1, 2018: $2.39 per covered life

* ‘Plan year’ is generally the 12-month period stated in the Summary Plan Description, or for plans filing a Form 5500, the plan year stated in that filing. NOTE: The plan year may be different from the benefit year or the renewal period.

How to Pay PCORI Fees

Under the Internal Revenue Service (IRS) final rule, plan sponsors are responsible for paying the fee, which is treated as an excise tax by the IRS. A Quarterly Federal Excise Tax Return (Form 720) must be used when reporting liability for the fee. The form can be accessed at http://www.irs.gov/pub/irs-pdf/f720.pdf. Instructions for completing and filing the form can be accessed at http://www.irs.gov/pub/irs-pdf/i720.pdf. 

Please note that the January 2018 version of IRS Form 720 does not reflect the correct plan year dates.  When you are prepared to file, please make sure you use an updated Form 720.Completion of the form is quite simple; only the relevant parts of the form need to be completed, which includes: 

• Identifying information at the beginning of the form (For the purpose of this form, this is considered a filing for the 2nd quarter, ending June 30, 2018.)

• Part II, line 133 (“Applicable self-insured health plans” line)

• Part III, items 3 and 10

• The signature section

• The voucher form, if the form is mailed

• The form may be filed electronically or mailed to:

  Department of the Treasury
  Internal Revenue Service
  Cincinnati, OH 45999-0009

Additional Information

The following information may be helpful in determining your tax obligation under the PCORI provision:

• The plan sponsor must apply a single calculation method in determining the average number of lives covered under the plan for the entire plan year. However, the plan sponsor is not required to use the same method from one plan year to the next.

• A self-insured Health Reimbursement Account (HRA) is not subject to a separate fee if the HRA is integrated with another applicable self-insured health plan that provides major medical coverage. The HRA and the other plan must be established or maintained by the same plan sponsor with the same plan year. However, if a self-insured HRA is integrated with an insured group health plan, then the fee must be paid for both the self-insured product and the insured product.

• Excepted benefits (as defined under section 9832c of the U.S. Code) are exempt from the fee, as is a health Flexible Spending Account (FSA) that satisfies the requirements of an excepted benefit.

• If a HRA or health FSA is determined to be subject to the fee, the regulation permits the plan sponsor to assume one covered life for each employee with a HRA and for each employee with a health FSA (due to the unavailability of information on the lives covered – dependents – under a HRA or Health FSA).

• All plans that provide medical coverage to employees owe this fee. The insurer/carrier for fully insured plans will pay the fee (it is usually passed on to the plan). The plan sponsor for self-funded plans will pay the fee. There is no exception for small employers, or for government, church or not-for-profit plans, nor for grandfathered plans or union plans. The fee is tax-deductible.

For more information, see:

 An IRS FAQ: https://www.irs.gov/uac/Patient-Centered-Outcomes-Research-Trust-Fund-Fee:-Questions-and-Answers
 
An IRS chart that shows which plans owe the fee: https://www.irs.gov/uac/Application-of-the-Patient-Centered-Outcomes-Research-Trust-Fund-Fee-to-Common-Types-of-Health-Coverage-or-Arrangements