BARB RAND
HNI Compliance Advisor

The IRS recently issued the revised IRS Form 720 (Quarterly Federal Excise Tax Return) and instructions for the PCORI fees. For calendar year plans, this form must be filed by July 31 for the plan year ending in 2012.

The approaching due date is a big deal for self-funded employers who must file the fees. The IRS provides instructions on how to complete Form 720. Click here to view a PDF of Form 720.

Following is an overview of the PCORI fee, filing deadline and fee information, and some tips about how the fee should be calculated.

Overview of the PCORI Fee

As you probably know, the Affordable Care Act calls for a Patient-Centered Outcomes Research Institute fee on health plan sponsors (aka employers, for self-insured plans) and insurance companies (for fully insured plans). This fee will fund activities and research of PCORI, including evaluating and comparing health outcomes and clinical effectiveness, risks, and benefits of services that treat, manage, diagnose, or prevent illness or injury.

The PCORI fee is $1 per covered life, based on the average number of lives (participants and dependents) covered under the plan.

Certain plans (such as stand-alone vision or dental, health savings accounts, and many flexible spending accounts) are exempt from the fee. The IRS published this chart showing which plans are subject to the fee and which are not.

The chart says that FSAs are subject to the PCORI fee unless they qualify as "excepted benefits." An FSA usually qualifies as an excepted benefit as long as the plan sponsor also offers another, non-excepted, major medical plan to FSA plan participants and does not contribute to the FSA.

For self-insured plans (including health reimbursement accounts), the employer is responsible for filing the revised 720 form and paying the fee. For fully insured plans, the insurance company bears this responsibility. While the insurer for fully insured plans turns in the 720 form and pays the fee, many insurers are wrapping this fee into premiums or billing this fee to employers at renewal time.

Deadline and Fee Information You Need to Know

The fee needs to be calculated, reported, and paid annually starting with plan years ending after September 30, 2012, and ending with plan years ending before October 1, 2019. Form 720 and the PCORI fee are due annually on July 31 of the calendar year immediately following the end of the plan year.

So, for calendar year plans, the first PCORI fee is due July 31, 2013, and the amount of the fee is $1 per covered life. This fee increases to $2 per covered life for 2013 calendar year plans.

Each year afterward, the PCORI fee will be adjusted for health care inflation. Below is a chart reflecting the filing dates and fee amounts.

How to Calculate Average Number of Lives

The IRS regulations outline three methods that an employer with a self-insured health plan may use to calculate the average number of lives to determine the PCORI fee:

(1) Actual Count Method: Add the total lives covered for each day of the plan year and divide by the total number of days in the plan year.

(2) Snapshot Method: Add the total lives covered on a particular date of each plan year quarter and divide that total by the number of dates on which a count is made. The date selected for the second, third, and fourth quarters must be within three days of the date in that quarter that corresponds with the date used in the first quarter.

To find the number of total lives covered on a particular date, the employer may use either the Snapshot Factor Method or the Snapshot Count Method (see below).

(a) Snapshot Factor Method: Add (1) and (2) below:

(1) Number of participants with self-only coverage

(2) Number of participants with coverage other than self-only multiplied by 2.35

(b) Snapshot Count Method: All covered employees and enrolled spouses and dependents

(3) Form 5500 Method:

(a) For Plans That Offer Self-Only Coverage: Add the total participants covered at the beginning of the plan year (as reported on Form 5500) to the total participants covered at the end of the plan year (as reported on Form 5500). Divide that total by 2. The Form 5500 Method is not available for plans that file for an extended Form 5500 filing date after July 31, 2013.

(b) For Plans That Offer Coverage Other Than Self-Only: Add the total participants covered at the beginning of the plan year (as reported on Form 5500) to the total participants covered at the end of the plan year (as reported on Form 5500). Do not divide that total by 2. The Form 5500 Method is not available for plans that file for an extended Form 5500 filing date after July 31, 2013.

Be Aware of Special Counting Rule for HRAs

If an employer offers a self-insured HRA with no other self-insured health plan (i.e., employee health coverage is a self-insured HRA with a fully insured major medical plan option), while the insurance carrier will need to count all covered employees and dependents for their fee, the employer may count each HRA as covering only a single life for their fee.

If a plan sponsor offers a self-insured HRA with a self-insured major medical plan, the programs may be combined with respect to lives covered under both arrangements. However, when calculating average lives covered under both arrangements, the special HRA counting rule does not apply. The employer will need to count all covered employees and dependents when calculating the fee but will not need to pay the fee for both the major medical plan coverage and HRA.

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