In Notice 2020-84, the Internal Revenue Service set forth the PCORI amount imposed on insured and self-funded health plans for policy and plan years that end on or after October 1, 2020 and before October 1, 2021.
The Patient-Centered Outcomes Research Institute (PCORI) fee is used to partially fund the Patient-Centered Outcomes Research Institute which was implemented as part of the Patient Protection and Affordable Care Act.
The PCORI fees were originally set to expire for plan years ending before October 1, 2019. However, on December 20, 2019, the Further Consolidated Appropriations Act was enacted and extended the fee to plan years ending before October 1, 2029.
The fee is calculated by using the average number of lives covered under a plan and the applicable dollar amount for that plan year. Code section 4375 imposes the fee on issuers of specified health insurance policies. Code section 4376 imposed the fee on plan sponsors of applicable self-insured health plans. This Client Alert focuses on the latter.
Adjusted Applicable Dollar Amount
Notice 2020-84 sets the adjusted applicable dollar amount used to calculate the fee at $2.66. Specifically, this fee is imposed per average number of covered lives for plan years that end on or after October 1, 2020 and before October 1, 2021. For self-funded plans, the average number of covered lives is calculated by one of three methods: (1) the actual count method; (2) the snapshot method; or (3) the Form 5500 method.
Deadline and How to Report
The PCORI fee is due by July 31, 2021 and must be reported on Form 720.
Instructions are found here (see Part II, pages 8-9).
The Form 720 itself is found here (see Part II, page 2).
Form 720, as well as the attached Form 720-V to submit payment, must be used to report and pay the requisite PCORI fee to the IRS. While Form 720 is used for other purposes to report excise taxes on a quarterly basis, for purposes of this PCORI fee, it is only used annually and is due by July 31st of each relevant year.
As previously advised, plan sponsors of applicable self-funded health plans are liable for this fee imposed by Code section 4376. Insurers of specified health insurance policies are also responsible for this fee.
- For plan years ending on or after October 1, 2017 and before October 1, 2018, the fee is $2.39 per covered life.
- For plan years ending on or after October 1, 2018 and before October 1, 2019, the fee is $2.45 per covered life.
- For plan years ending on or after October 1, 2019 and before October 1, 2020, the fee is $2.54 per covered life.
- For plan years ending on or after October 1, 2020 and before October 1, 2021, the fee is $2.66 per covered life.
Again, the fee is due no later than July 31 of the year following the last day of the plan year.
As mentioned above, there are specific calculation methods used to configure the number of covered lives and special rules may apply depending on the type of plan being reported. While generally all covered lives are counted, that is not the case for all plans. For example, HRAs and health FSAs that are not excepted from reporting only must count the covered participants and not the spouses and dependents. The Form 720 instructions do not outline all of these rules.
More information about calculating and reporting the fees can be found here.
Questions and answers about the PCORI fee and the extension may be found here.
As you are well aware, the law and guidance are continually evolving. Please check with your Fraser Trebilcock attorney for the most recent updates.
This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.
We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.
Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or email@example.com.
Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or firstname.lastname@example.org.