Get ready for one more requirement of the Affordable Care Act—the Patient-Centered Outcomes Research Institute (PCORI) Fee. It’s a fee your plan pays to fund government research into the effectiveness of certain treatments.
What Is the Amount of the Fee?
The fee is:
- $1 times the average covered lives for policy years ending on or after Oct 1, 2012 and ending before Oct 1, 2013;
- $2 for policy years ending on or after October 1, 2013 and before October 1, 2014
- $2 plus an adjustment for inflation of medical costs for policy years ending after October 1, 2014
The payment is due July 31 of the calendar year following the last day of the plan year.
Thus the due date is July 31, 2013 for plan years ending between October 1, 2012 and December 31, 2012. The fees will continue through 2018.
Remember, says Gillihan, that “covered lives” includes not only participants but covered dependents as well.
Who Pays the Fee?
If you are fully insured, the insurer pays the fee. If you are self-insured, the plan sponsor pays it. Some smaller organizations may be exempt—see your benefits professional for details.
There are four methods the plan sponsor can choose to calculate average number of covered lives.
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When the Company Uses an Insurer
The IRS has provided four different methods to calculate the average number of covered lives under a specified health insurance policy.
- Actual Count Method: The sum of actual covered lives each day during the plan year /total number of days in the plan year.
- Snapshot Method: The snapshot method formula is the sum of covered lives on one or more dates in each quarter divided by the applicable number of dates used. So, for example, if you use the first day of each quarter as your benchmark, then you will add the total number of lives on the first day of each quarter and then divide that number by four.
- Member Months Method: The member months method formula is the number of member months1 reported on the National Associate of Insurance Commissioners (NAIC) Supplemental Health Care Exhibit (the “Exhibit”)2 divided by 12.
- State Form Method: The state form method is the number of covered lives reported on the state form.
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When the Company Is Self-Funded
There are similar but somewhat different methods for organizations that are self-funded:
- Actual Count Method: The sum of actual covered lives each day during the plan year /total number of days in the plan year.
- Snapshot method #1: the sum of covered lives on one or more dates in each quarter divided by the applicable number of dates used.
- Snapshot Method #2: This is the same as #1, except that the number of covered lives on your benchmark date(s) in a quarter is the sum of participants with self only coverage and (participants with other than self-only x 2.35).
- Form 5500 Method: The sum of total participants identified on Form 5500 at beginning of plan year and total participants identified on Form 5500 at end of plan year divided by 2.
Special rules cover HRAs/Health FSAs, Gillihan notes.
Is the Fee Deductible?
It’s probably a business expense, says Gillihan. Can I pay it with plan assets? Typically, under ERISA, you can’t, so probably not.
Note: this is an overview. You should check with your provider or benefits counsel to determine appropriate steps for your particular circumstances.
With new regulations on the horizon and the need to balance costs while continuing to offer competitive employee benefits, it’s crucial for you to have a solid foundation in place for employee benefits ahead of the 2014 compliance deadline.
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Wow–I’ve done a lot of research into the ACA, and I can honestly say this is the first I’ve heard of this fee. Thanks for the heads up.