The IRS has announced that the 2019 calendar plan year PCORI rate for the July 2020 filing will be $2.54 per covered life (up from $2.45).
2019 was originally the final year PCORI fees were destined to be filed. In a surprise move under the Further Consolidated Appropriations Act, 2020 passed by Congress last December, the fee was extended for 10 more years, until 2029.
In IRS Notice 2020-44 the IRS has now released the fee for plan years ending on or after October 1, 2019 and before October 1, 2020, which includes 2019 calendar plan years that will report and pay the PCORI fee this July. The guidance also provides calculation transition relief for employers who may not have anticipated the need to identify the number of covered lives for plan years in that period.
The annual PCORI fee must be reported and paid to the IRS by July 31, 2020 via the second quarter Form 720.
Why did Major Industry Groups Push for a 10 year Extension of the PCORI Fee?
The fee is imposed on health insurance issuers and self-insured health plan sponsors in order to fund the Patient-Centered Outcomes Research Institute (PCORI).
The institute currently maintains a robust portfolio of patient-centered outcomes research that addresses a variety of high priority conditions and topics. Their priorities are:
- Assessment of Prevention, diagnosis and treatment options, including a COVID-19 prevention and treatment study
- Improving Healthcare Systems,
- Communications and Dissemination Research,
- Addressing Disparities,
- Accelerating Patient Centered Outcomes Research and Methodological Research.
PCORI research projects are also targeting certain populations of interest such as: racial and ethnic minorities, low socioeconomic status, women, older adults and individuals with multiple chronic conditions. The PCORI website lists current and completed research projects as well as outcomes.
Who Needs to Pay the PCORI Fee?
Fully Insured Medical Plans: Health Insurers are responsible for paying the fee on fully insured health policies. This fee is built into the insurance premium, so there is no action required by employers.
Self-Insured Medical Plans (Including HRAs): The plan sponsor (generally the employer) is responsible for paying the PCORI fee for self-insured health plans. The employer must file the Form 720 and pay the fee.
To Which Plans Does the PCORI Fee Apply?
The PCORI fee generally applies only to major medical plans and health reimbursement arrangements (HRAs). (See below for an exception that applies to many HRAs.)
The PCORI fee does not apply to dental and vision coverage that are excepted benefits (whether through a stand-alone insurance policy or meeting the “not integral” test for self-insured coverage). Virtually all dental and vision plans are excepted benefits.
The PCORI fee also does not apply to health FSAs (which must be an excepted benefit to comply with the ACA) or HSAs (which are not a group health plan).
For a quick reference guide, the IRS has published a table which summarizes the applicability of the fee to common types of health and welfare benefits.
Does the PCORI Fee Apply to HRAs?
Yes, an HRA is a self-funded health plan. However, the PCORI rules provide an exception to the fee requirement for an HRA where it is offered along with a self-insured major medical plan that has the same plan year as the HRA. This avoids the need to pay the PCORI fee for both the HRA and the self-insured major medical plan (i.e., each person covered by both plans is counted only once for purposes of determining the PCORI fee).
There is no exception from the PCORI fee for an HRA offered along with fully insured major medical coverage. While the insurance carrier is responsible for paying the PCORI fee for the fully insured medical plan, the employer is responsible for paying the PCORI fee on the HRA. The IRS is essentially double-dipping in this scenario by imposing the PCORI fee on the same lives covered by both the major medical and the HRA. In recognition of this, the HRA PCORI fee paid by the employer is determined by counting only one life per employee participating in the plan (and not dependents).
Summary: The PCORI fee is required for an HRA unless it is paired with a self-insured major medical plan that has the same plan year as the HRA. Where the PCORI fee is required, the employer is responsible for filing the Form 720 and paying the PCORI fee for an HRA solely for the covered employees (not dependents).
How is the PCORI Fee Calculated?
Plan Sponsors of self-insured health plans (other than an HRA) calculate the fee based on the average number of total lives covered by the plan (both employees and dependents).
- Actual count method
- Snapshot method
- Form 5500 method
In addition, for plan years ending on or after October 1, 2019 and before October 1, 2020 (including 2019 calendar plan years), plan sponsors may use any reasonable method to calculate the average number of covered lives. Employers using this alternative “reasonable method” approach must apply the method consistently for the duration of the plan year.
How Much Do I Need to Pay on the July 2020 Form 720?
- Plan Years Ending January – September 2019: $2.45 per covered life (including spouses/dependents)
- Plan Years Ending October– December 2019: $2.54 per covered life (including spouses/dependents)
For calendar plan years, the applicable rate for the 2019 plan year will be $2.54 per covered life.
Employers filing for a self-insured medical plan should keep in mind that the plan year is the ERISA plan year reflected in the plan document, SPD, and Form 5500 (if applicable).
The IRS has published a table of the applicable filing deadline and rate for each plan year ending date. We anticipate the IRS will update the table shortly to include this new $2.54 rate just announced by the IRS in Notice 2020-44.
How do we file the PCORI fee?
Another July 31 Deadline: Form 5500 Filing
One other July deadline looming is for calendar plan year health and welfare plans with 100 or more covered employees at the beginning of the plan year. The Form 5500 filing is due to the DOL by July 31, 2020 for calendar plan years.
Plans are permitted to file a Form 5558 with the IRS for an automatic 2 ½-month extension of this deadline (to October 15, 2020 for calendar plan years).
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).