This month employers reach the end of an era as they pay one of the last fees created by the Affordable Care Act (ACA).
In 2012, through the Affordable Care Act (ACA), Congress created a nonprofit corporation known as the Patient-Centered Outcomes Research Institute (PCORI) to support clinical effectiveness research.
The stated mission 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. However, as the fee sunsets self-insured employers will pay their last PCORI fee by July 31, 2019 (for calendar-year plans) or by July 31, 2020 (for certain non-calendar-year plans).
In view of the upcoming payment deadline, I wanted to address some of the most frequently asked questions from employers.
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:
80% of Funding
PCORI receives 80 percent of the monies collected by the PCOR Trust Fund to support its research funding and operations.
20% of Funding
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).
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.
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.
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.
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,
$2.45 per plan member for policy and plan years ending after Sept. 30, 2018, and before Oct. 1, 2019,
So, if an employer averaged 386 insured members on a self-funded group health plan in 2018, and was using the snapshot calculation method, then the total amount owed to the IRS would be:
386 x $2.45 = $945.70
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.
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 same time as Form 720.
Yes. The PCORI fee sunsets in 2019. It remains effective for policy and plan years ending after Sept. 30, 2012, and before Oct. 1, 2019.
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.
Although there is a lot of information available as to the type of research performed by the Patient Centered Outcomes Research Institute (PCORI), evidence as to how that is translating to a reduction in the overall cost of health insurance for employers and Americans in general does not appear to be as easily quantified.
For more information or questions, call us at 602-903-4047 or email firstname.lastname@example.org.
Those wanting additional information on this non-profit can visit: https://www.pcori.org/.
*Source: Patient Centered Outcomes Research Institute
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.