IRS Deadline July 31st: Employer PCORI Fees Due

IRS Deadline July 31st: Employer PCORI Fees Due

In 2012 the Affordable Care Act (Healthcare Reform) created a nonprofit corporation known as the Patient-Centered Outcomes Research Institute (PCORI), to support clinical effectiveness research.

The stated mission of this non-profit was “To assist patients, clinicians, purchasers, and policymakers in making informed health decisions by advancing the quality and relevance of evidence-based medicine through the synthesis and dissemination of comparative clinical effectiveness research findings.”

Since 2010 insurance companies and employers have paid in millions of dollars to help fund this institute. In view of the upcoming payment deadline, I thought it was timely to address some of the most frequently asked questions I receive from employers.

How is the PCORI funded?

PCORI is funded through the Patient-Centered Outcomes Research Trust Fund (PCOR Trust Fund), which was established by Congress following the introduction of the Affordable Care Act (ACA) of 2010. The PCOR Trust Fund receives income from three funding streams:

  1. appropriations from the general fund of the Treasury
  2. transfers from the Centers for Medicare and Medicaid trust funds, and
  3. a fee assessed on private insurance and self-insured health plans (the PCOR fee)

PCORI receives 80 percent of the monies collected by the PCOR Trust Fund to support its research funding and operations. The Department of Health and Human Services (HHS) receives the other 20 percent of trust fund monies to support dissemination and research capacity-building efforts (the majority of HHS’s share goes to the Agency for Healthcare Research and Quality).

What is the impact for employers?

Since 2012, for every insured individual on a health plan, the IRS requires insurance companies to tack on to the premium rate, an additional fee called the “PCORI fee”, which the IRS then collects and pays to the PCOR Trust Fund.

Who is responsible for reporting and paying the PCORI fee?

Insurance Companies

In the case of group insurance, if the group medical plan is fully insured, then the medical insurance carrier is responsible for reporting and remitting the PCORI fee to the IRS.

Employers

If the group health plan is self-insured, or partially self-insured including level-funded plans, then it is the employer’s responsibility to both report and remit to the IRS using Form 720.

Instructions for completion of the form can be found on page 8 of the Instructions for Completion guide.

How much is the PCORI fee?

The annual amount of the PCORI fee is equal to the average number of lives covered during the policy year or plan year multiplied by the applicable dollar amount for the year.

The applicable dollar amount is adjusted yearly to reflect inflation in National Health Expenditures, as determined by the Secretary of Health and Human Services.

Since its inception, the following PCORI fee has been assessed for every single person insured on a health plan in the United States:

$1.00 per plan member for policy and plan years ending after Sept. 30, 2012, and before Oct. 1, 2013

$2.00 per plan member for policy and plan years ending after Sept. 30, 2013, and before Oct.1, 2014

$2.08 per plan member for policy and plan years ending after Sept. 30, 2014, and before Oct. 1, 2015

$2.17 per plan member for policy and plan years ending after Sept. 30, 2015, and before Oct. 1, 2016

$2.26 per plan member for policy and plan years ending after Sept. 30, 2016, and before Oct. 1, 2017

$2.39 per plan member for policy and plan years ending after Sept. 30, 2017, and before Oct. 1, 2018,

Example:

So, if an employer averaged 386 insured members on a self-funded group health plan in 2017, and was using the snapshot calculation method, then the total amount owed to the IRS would be:

386 x $2.39 = $922.54

How does an employer determine the number of people covered on the health plan in the previous year?

Usually by the end of June, employers will have received a letter from the insurance company or third-party administrator (TPA) informing of the total number of covered members on the plan for purposes of calculating the PCORI fee.

The IRS offers employers a choice of calculation methods between using an actual number of insureds or an average, instructions for which are explained in the letter.

What is the deadline for filing form 720?

Form 720 is due on July 31 of the year following the last day of the policy year or plan year. Electronic filing is available but not required and payment is due at the time as Form 720.

How much has been paid to PCORI since it was first introduced?

  • $210 million in appropriations from general fund revenues for government fiscal years (FYs) 2010 through 2012*
  • $150 million from the general fund annually for FYs 2013 through 2019*

Will the PCORI fee eventually be eliminated?

The PCORI fee is slated to expire in 2019. Until then, it remains effective for policy and plan years ending after Sept. 30, 2012, and before Oct. 1, 2019.

How has society benefited from the PCORI?

While the institute has received millions of dollars in funding over the last several years, it has been difficult for employers and insurers to identify an immediate return on investment. While my own research revealed a lot of details of the work being performed by the Patient Centered Outcomes Research Institute (PCORI), the cost-benefit analysis as to how that is translating to a reduction in the overall cost of health insurance remains somewhat ambiguous.

Those wanting additional information on this non-profit can visit: https://www.pcori.org/.

*Source: Patient Centered Outcomes Research Institute

Author
Joanna Morrow

Joanna Morrow is an employer consultant and advocate who has worked in the employee benefits industry for over two decades. She works diligently to help employers overcome obstacles in their business by sharing her expertise in Human Resources, Benefits & Compensation, Process Mapping, Risk Management and ERISA/DOL/IRS compliance. She is a licensed life and health insurance professional in the State of Arizona and is an active member of the National Association of Health Underwriters (NAHU). Joanna is a senior partner at Arizona Benefit Consultants in Phoenix.

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