A Primer on Reporting PCORI Fees to the IRS

Fully insured carriers and most self-insured health plan sponsors must pay annual Patient-Centered Outcomes Research Institute (PCORI) fees to the IRS. They are also required to report the same on Form 720 as an excise tax. The payment is due July 31, 2022.
 
The PCORI Fee was to cease for plan years ending after September 30, 2019. However, the PCORI Fee regulation has been extended for another 10 years through September 30, 2029, due to the Further Consolidated Appropriations Act of 2020. (Internal Revenue Code Sections 4375 and 4376)
 
A Little Background
On December 6, 2012, the IRS issued final regulations on the temporary annual payment of the PCORI Fees by fully insured carriers and self-insured plan sponsors of applicable health plans, including those covering retirees and COBRA individuals. (Internal Revenue Code Sections 4375 and 4376). Since July 2013, the fully insured carriers and most plan sponsors of self-insured health plans have been responsible for paying the annual fees directly to the IRS.

Defining Applicable Health Plans and Excepted Benefits:

• Applicable health plan: A self-insured health plan that provides for accident and health coverage. There are exceptions for excepted benefits
• Excepted benefits: Includes separate dental and vision plans, health flexible spending arrangements, hospital indemnity plans, and disability income insurance, for example

How PCORI Fees Apply to Different Health Plans
 
HRAs & Self-Insured Plans  – A Health Reimbursement Arrangement (HRAs) that is integrated with a self-insured health plan is considered part of a single plan, which avoids duplication of fees. 
 
HRAs & Fully Insured Plans  –  When the HRA is integrated with a fully insured medical plan, the employer plan sponsor submits payment for an employee who is enrolled in the HRA. The insurer (carrier) submits payments for the same employee who is enrolled in the associated insured plan. Employees only (not dependents) are counted towards calculating the PCORI fees for the HRA that’s integrated with a fully insured medical plan.
 
FSAs  –  A Health Flexible Spending Account (FSA) is not subject to the PCORI Fee if it meets the requirements of an excepted benefit under Code §9832(c). A health FSA is considered an excepted benefit if:

• The employers make other group health plan coverage (not limited to excepted benefits) available to employees for the year; and
• The health FSA is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the arrangement for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election).

PCORI Fee Amounts (IRS Notice 2022-4):

• $2.66 per covered life for plan years ending on or after October 1, 2020, through September 30, 2021 
• $2.79 per covered life for plan years ending on or after October 1, 2021, through September 30, 2022 

Penalties?
Final regulations do not include penalty information for failure to report or pay the PCORI fee. 
But since this fee is considered an excise tax that’s reported on IRS Form 720, any related penalty for failure to file a return or pay a tax would seem to apply.
  
How Covered Lives Are Counted In Self-Funded Health Plans:
 

• Actual Count Method – The plan sponsor adds the total number of lives covered (all covered lives, not just enrolled employees) for each day of the plan year and divides that total by the number of days in the plan year.
   
• Snapshot Method – The plan sponsor adds the total number of lives covered on a specified date (see below) during the first, second, or third month of each quarter of the plan year and divides the total by the number of dates on which the count was made. Each date used for the second, third, or fourth quarter must be within three days of the date used in the first quarter.
   
  • Snapshot Factor Method – The number of lives covered on a date is equal to the total of:
    • The number of participants with self-only coverage on that date plus the number of participants with coverage other than self-only coverage on that date
    • The total of the two above is then multiplied by the applicable fee
  • Snapshot Count Method – The number of lives covered on a date equals the actual number of lives covered on the designated date. 
     
• Form 5500 Method – This method is based on the number of participants reported on Form 5500. This method can be used only if Form 5500 is filed no later than the due date of the PCORI Fee (July 31). If an extension is used resulting in Form 5500 being filed later than July 31, this method cannot be used to calculate the average number of covered lives. 
  • If the plan sponsor is offering self-only coverage they must add the total participants covered at the beginning and the end of the plan year, as reported on Form 5500, and divide by two.
  • If the plan sponsor is offering more than self-only coverage they must add the total participants covered at the beginning and the end of the plan year as reported on Form 5500 (and do not divide by two).

Important to Remember About PCORI Fees:

• Fees are paid annually
• Fees are reported and paid by July 31 of each calendar year immediately following the last day of the plan year
• The total due each year is calculated by multiplying the average number of covered lives by the dollar amount for the Federal fiscal year in effect on the last day of the plan year
• Fees are paid using IRS Form 720 – Quarterly Federal Excise Return (due July 31st of each year
• The fee cannot be paid from plan assets
• The fee cannot be submitted by a third party on a plan sponsor's behalf
• The fee is not tax-deductible
• Fully Insured carriers are responsible for paying the PCORI fees and reporting for fully insured health plans
• Self-Insured plan sponsors are responsible for paying the PCORI fees and reporting on IRS Form 720. The count will include employees and dependents.
• Plan sponsors offering an HRA benefit with their fully Insured health plan are responsible for paying the PCORI fees and reporting on IRS Form 720 for employees only enrolled in the HRA
• PCORI fees and reporting are due based on the plan year

Reporting Fees
The link below will take you directly to the IRS site to get the revised form along with instructions on how to complete it. On the form the information will be recorded in Part II on Page 2; IRS No. 133 – Applicable self-insured health plans (c) or (d) based on when the plan year ended. Please note the IRS has not yet updated the form with the new dates and the new amounts for the reporting requirement due by July 31, 2022.
IRS Form 720   
Instructions for IRS Form 720   

The PCORI Fee information is reported on Page 2; Part II; IRS No. 133 Line; Applicable self-insured health plans and:

• With a plan year ending before October 1, 2021, or with a plan year ending on or after October 1, 2021, and before October 1, 2022 
• On the Payment Voucher of the 720 which is 720-V (last page) check the 2nd Quarter

Applicable Dollar Amounts for Plan Years Ending

• Plan years ending on or after January 1, 2021, through September 30, 2021: $2.66 per each covered member (employee and dependents). (Employees Only for HRA plans).
• Plan years ending on or after October 1, 2021, through September 30, 2022: $2.79 per each covered member (employee and dependents). (Employees Only for HRA plans).

A Reminder About Who Does the Reporting

• A fully insured medical benefit: If the employer is offering a fully Insured medical benefit, the carrier will report the PCORI Fee information for the medical benefit.
• A carrier’s self-funded plan: If Amwins Connect Administrators is administering the premium invoicing and enrollment for a carrier’s self-funded plan, the carrier will provide the PCORI Fee information for the employer to report to the IRS.
• A self-funded plan or an employer-funded HRA plan: If Amwins Connect Administrators is administering the employer self-funded plan or an employer’s funded HRA plan, we provide the information that’s needed to report to the IRS. We will use the Actual Count Method to calculate the number of covered lives or employees for reporting.  
• Self-Funded Plans or HRA plans: If Amwins Connect Administrators is administering the Self-Funded Plans or HRA plans, we will be providing the information needed to report to the IRS and will use the Actual Count Method to calculate the number of covered lives or employees for reporting. 
• The information will be sent to the brokers and the clients in time for the employer to report to the IRS. If a former (not currently active) self-funded or HRA client wants Amwins Connect Administrators, Inc. to send PCORI Fee information please submit a written request to Amwins Connect Administrators, Inc.