As part of the Patient Protection and Affordable Care Act ("PPACA"), the payment date for one of the many new excise taxes already being imposed under this Act is again quickly approaching. Specifically, the Patient-Centered Outcomes Research Institute ("PCORI") fee is an excise tax imposed under the Act on health insurance providers and on employers sponsoring their own self-insured group health plans which will again be due no later than July 31, 2014.
By way of background, the PCORI fee first became effective for the plan years of covered group health plans ending on or after October 1, 2012. For the first year, the PCORI fee was set at $1 per "covered life". The PCORI fee increases to $2 per "covered life" for plan years ending on or after October 1, 2013. The PCORI fee is scheduled to continue for all subsequent plan years ending before October 1, 2019, with increases corresponding to the medical inflation rate each year.
To determine "covered lives" for this purpose, all individuals, who are covered during the plan year, including spouses and dependents, must be counted to determine the average number of lives. There are three alternative methods to calculate the average number of lives covered under the plan: 1) actual count, 2) snapshot, or 3) Form 5500 method. The first two methods require detailed records for participants and their dependents that are covered. To use the Form 5500 method, the applicable Form 5500 filed for the health plan must be filed on or before July 31. For calendar year health plans, Form 5500 is initially due on July 31.
While many employers with fully-insured group health plans have already seen these new PCORI fees built into their premium costs, those employers with self-insured group health plans are responsible for paying this fee. According to IRS Regulations, third party administrators of self-insured group health plans are not allowed to pay these fees or even file the required IRS Form 720.
Generally, a self-insured health plan is subject to the PCORI fee if the plan provides "accident and health coverage" as defined in the Internal Revenue Code and any part of the plan is not provided through an insurance policy. This definition includes any self-insured medical arrangements, COBRA, and retiree-only medical plans. Self-insured plans that are limited to vision, dental, employee assistance, disease management, and wellness programs are not subject to the PCORI fee if these programs do not provide significant benefits in the nature of medical care or treatment. A complete listing of the types of health coverage and arrangements subject to the PCORI fee and any exceptions can be found on the IRS website.
The PCORI fees must be reported on IRS Form 720 Quarterly Federal Excise Tax Return for the second quarter and paid no later than July 31 immediately following the last day of the plan year for which the fee is attributable. The PCORI fee is due once a year (with the second quarterly report) and cannot be extended.
If you have questions regarding the calculation of the excise tax or need assistance with the preparation of the required Form 720, please contact your local UHY LLP professional.