July 31 Deadline Approaches for Self-Insured Health Plans to Pay PCORI Fee– July 09, 2013 by Angel Rice

As a result of the Patient Protection and Affordable Care Act (PPACA), most fully insured and self-insured health plans are subject to a new fee. Often referred to as the PCORI fee — because it will partially fund the newly created Patient-Centered Outcomes Research Institute (PCORI) charged with researching outcomes, effectiveness and appropriateness of health care services — the impact will be felt by both fully insured and self-insured health plans.

Impending Deadline

The PCORI fee affects plan years ending on or after October 1, 2012, and before October 1, 2019. Health insurance carriers will pay the fee for fully insured plans. However, self-insured plans, both those on a calendar year and certain fiscal year plans, will need to pay the 2012 fee by July 31, 2013.

Fee Calculations

The PCORI fee for the first year (plan years ending on or after October 1, 2012, and before October 1, 2013) is equal to $1 multiplied by the average number of covered lives in the group health plan. The PCORI fee for the second year will increase to $2 multiplied by the average number of covered lives in the group health plan. For following years the fee will be indexed for increases in national health expenditures.

The regulations provide three methods for determining the number of lives used to calculate the fee. Third-party administrators (TPAs) should be able to provide plan reports to assist plan sponsors in determining the number of lives under each method.

Payment Process

In June, the IRS finally released an updated Form 720 (even though the revision date on the form reads April 2013) and related payment voucher Form 720-V used to report and remit the PCORI fee (see Part II on Page 2 of Form 720). Although Form 720 is designed for quarterly payments of certain excise taxes, the PCORI fee is paid only annually. Also of note, the PCORI regulations expressly prohibit using “third-party reporting” arrangements (such as TPAs) for the filing of Form 720. Thus, plan sponsors of self-insured health plans should act soon to make arrangements to complete and file the form and pay the annual PCORI fee to the IRS by the July 31, 2013, deadline.

New Transitional Reinsurance Fee in 2014

For 2014 through 2016, both insured and self-insured plans will also be subject to a transitional reinsurance fee payable to the U.S. Department of Health and Human Services (HHS). This fee, which will result in a more significant outlay of fees as compared to the PCORI fee, is intended to support temporary reinsurance programs for the state individual insurance markets. Current HHS guidance indicates that the national reinsurance fee will be approximately $63 per covered life; however, states are allowed to implement supplemental programs that may require additional contributions.

For insured plans, the fee is anticipated to be included in monthly billing statements. For self-insured plans, the employer is responsible for paying the fee; but, unlike the PCORI fee, third-party reporting arrangements are permissible.

For 2014, the responsible party must submit a written report with enrollment counts to HHS by November 15, 2014. HHS will send a notice of the amount due by December 15, 2014, and the payment will be due within 30 days of receipt.

If you are a sponsor of a self-insured health plan, please contact Angel Rice at arice@cohencpa.com for more information or for assistance in preparing the 2012 Form 720.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.