Employers that sponsor self-insured group health plans, including health reimbursement arrangements (HRAs) should keep in mind the upcoming July 31, 2015 deadline for paying fees that fund the Patient-Centered Outcomes Research Institute (“PCORI”). As background, PCORI was established as part of health care reform to conduct research to evaluate the effectiveness of medical treatments, procedures and strategies that treat, manage, diagnose or prevent illness or injury. PCORI fees were first due by sponsors of self-insured group health plans and insurers last July for plan and policy years that ended on or after October 1, 2012. Under health care reform, most employer sponsors and insurers will be required to pay PCORI fees until 2019.
The amount of PCORI fees due by employer sponsors and insurers is based upon the number of covered lives under each “applicable self-insured health plan” and “specified health insurance policy” (as defined by regulations) and the applicable plan or policy year.
- For plan years that ended between January 1, 2014 and September 30, 2014, the fee is $2.00 per covered life and is due by July 31, 2015.
- For plan years that ended between October 1, 2014 and December 31, 2014, the fee is $2.08 per covered life and is due by July 31, 2015.
- The fee will be paid by July 31, 2016 for any plan years ending in 2015.
- NOTE: The insurance carrier is responsible for paying the PCORI fee on behalf of a fully insured plan. The employer is responsible for paying the fee on behalf of a self-insured plan, including an HRA.
Historical information for prior years:
- For plan years that ended between October 1, 2012 and December 31, 2012, the fee was $1 per covered life and was due by July 31, 2013.
- For plan years that ended between January 1, 2013 and September 30, 2013, the fee was $1 per covered life and was due by July 31, 2014.
- For plan years that ended between October 1, 2013 and December 31, 2013, the fee was $2 per covered life and was due by July 31, 2014.
The fee-amount per covered life generally increases each year based upon health expenditure data released by the Department of Health and Human Services annually. Employers that sponsor self-insured group health plans should report and pay PCORI fees using IRS Form 720, Quarterly Federal Excise Tax Return.
Final regulations issued by the Internal Revenue Service contain special rules regarding the types of plans and policies for which fees are due and also include several different methods that may be used by employers to determine the number of covered lives under each plan. There are additional rules for counting the number of covered lives under an HRA (in general, the fee applies on a per-covered employee basis for HRAs). Employers that sponsor self-insured plans should review these rules closely to ensure that the correct PCORI fees are paid.
Note that because the PCORI fee is assessed on the plan sponsor of a self-insured plan, it should not be included in the premium equivalent rate that is developed for self-insured plans if the plan includes employee contributions. However, an employer’s payment of PCORI fees should be tax deductible as an ordinary and necessary business expense.
This alert was prepared for Benico, Ltd. by Peter Marathas, an ERISA and Executive Compensation lawyer with over 20 years’ experience assisting clients nationally with benefits and compensation matters. He is a partner at Marathas Barrow & Weatherhead LLP, a premier employee benefits, executive compensation and employment law firm. He can be reached at email@example.com or (617) 830-5456.
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