Fees Apply to Employers Sponsoring Self-insured Plans
The IRS issued Notice 2020-44 on June 8 to adjust the fee paid by insurers or self-insured health plan sponsors to fund the federal Patient-Centered Outcomes Research Institute (PCORI) trust fund. The fee must be paid to the IRS by July 31.
The new amount used to calculate the PCORI fee for plan years that end on or after Oct. 1, 2019, and before Oct. 1, 2020, is $2.54 per person covered by the plan. The fee for plan years ending prior to Oct. 1, 2019, was $2.45 per person.
The fee is paid annually by self-insured employers. For fully insured employers, the fee is paid by the insurance provider, although the cost may be factored into premium increases.
The IRS provides self-insured employers with transition relief for calculating the average number of plan enrollees, which the IRS refers to as covered lives—employees, spouses and dependents covered by the health plan.
Fee Extended for 10 Years
For plans with terms ending after Sept. 30, 2012, and before Oct. 1, 2019, the Affordable Care Act mandated the payment of an annual PCORI fee to provide initial funding for the Washington, D.C.-based institute, which conducts research on the comparative effectiveness of medical treatments. As part of the Bipartisan Budget Act of 2019, the PCORI annual filing and fees were reinstated for an additional 10 years, through 2029.
Plan Dates Affect Payment
Payment due on any given July 31 covers the plan year that ended in the preceding calendar year, so the fee payable by July 31, 2020, is for plan years ending in 2019.
The amount of the fee varies, however, depending on when the plan year ended:
- The fee is $2.54 per covered life for plan years ending between Oct. 1, 2019, and Sept. 30, 2020. This includes calendar-year plans that ended Dec. 31, 2019.
- The fee remains at $2.45 per covered life for non-calendar-plans whose plan year ended between Jan. 1 and Sept. 30, 2019.
The increase is based on the projected rise in national health spending this year. The U.S. Department of Health and Human Services published the projections in February.
Form 720 Now Updated
The IRS views the PCORI fee as an excise tax to be paid once a year by July 31. Payment is sent to the IRS with Form 720.
Until it was posted online June 12, the Form 720 available on the IRS website did not have this year’s plan year dates under Part II—Patient-Centered Outcomes Research Fee. The form is now up to date, however, for this year’s filing. Although the top of the form indicates it was revised April 2020, the IRS apparently delayed posting the form until after Notice 2020-44 was issued.
The Instructions for IRS Form 720 have also been updated and correctly state that the fee payable by July 31 is for plan years ending before Oct. 1, 2020.
Payers should remember to check “2nd Quarter” on the Form 720-V voucher so their payment is processed properly.
Transition Relief
Because the PCORI fee was set to expire for plan years ending after Sept. 30, 2019, sponsors of self-insured health plans may not have anticipated the need to subsequently identify the number of covered lives in their plans. In Notice 2020-44, the IRS acknowledged this problem.
IRS regulations generally allow four methods to calculate the average number of covered lives when determining the PCORI fee: the actual count, the snapshot, the member months and the state form. The IRS describes these methods on its website.
While, as in years past, insurers and self-insured plan sponsors may use one of these four methods to calculate the fee, the IRS is temporarily permitting the use of any “reasonable method” to calculate the fee due. The transition relief applies to plan years ending on or after Oct. 1, 2019, and before Oct. 1, 2020.
Tax Deductibility of Fees
The IRS stated that fees paid by issuers of certain health insurance policies and plan sponsors of certain self-insured health plans to fund the Patient Centered Outcomes Research Trust Fund (PCORI) were ordinary and necessary business expenses, and thus, deductible business expenses. Please see the memorandum issued here:
http://www.irs.gov/pub/irs-utl/AM2013-002.pdf