Health & Welfare Plan Compliance Reminder: PCORI Fee Filing Deadline

PCORI Fee Background

The PCORI fee is a requirement under the Affordable Care Act to fund the Patient-Centered Outcomes Research Institute, focusing on clinical effectiveness research. It was scheduled to end for plan years ending on or after October 1, 2019. However, a federal spending bill passed by Congress in 2019 reinstated the PCORI fees and filings for another ten years, through 2029.

The PCORI fee is filed and paid annually on IRS Form 720 (Quarterly Federal Excise Tax Return). Employers with self-funded health plans ending in 2023 are advised to use the 2nd quarter Form 720 to file and pay the PCORI fee by July 31, 2024. The information is reported in Part II of Form 720.

Since Form 720 is a tax form, rather than an informational return form such as Form 5500, employers or their accountants must prepare and file it. The IRS permits employers to deduct PCORI fees as an ordinary and necessary business expense under Internal Revenue Code (IRC) Section 162(a).^[1]

For self-funded group health plans, the fee is calculated using the average number of lives covered under the plan, including all employees and covered dependents, and the applicable rate for that plan year, outlined in the table below and also accessed on the IRS website here.

PCORI Fee Calculation

The PCORI fee is calculated on the average number of lives covered under an applicable self-funded health plan. The IRS provides the following three alternative methods to determine the average number of lives covered under a self-funded plan for the plan year for PCORI fee calculation purposes:

1. Snapshot Method: involves adding the total number of lives covered on a date during the first, second, or third month in each quarter of the policy year, or an equal number of dates for each quarter, and dividing the total by the number of dates on which a count was made.
   • There are two methods within the snapshot method to count family members:
     1. The “snapshot count method” involves the plan sponsor counting the actual number of lives covered on the designated date.
     2. The “snapshot factor” method entails the plan sponsor counting the number of participants with self-only coverage on the designated date PLUS the number of participants with coverage other than self-only coverage on the designated date, multiplied by 2.35.
2. Form 5500 Method: involves a formula using the number of participants reported on the Form 5500 for the plan year.
   • Employer plan sponsors can only use the Form 5500 method if they file the Form 5500 by the due date for the PCORI fee for that year (typically July 31).
   • Employer plan sponsors may not use the Form 5500 method to calculate the PCORI fee if they file a Form 5500 extension.
3. Actual Count Method: involves calculating the sum of the lives covered for each day of the plan year and dividing that sum by the number of days in the plan year
   • This is generally the least practical calculation method.

Your Risk Strategies team will provide a detailed analysis of which calculation method is most suitable for your self-funded plan.

HRAs/FSAs/HSAs/Excepted Benefits

• HRAs: For Health Reimbursement Arrangements (HRAs), the IRS outlined two special PCORI fee-related rules. First, if the integrated medical plan is fully insured, then the plan sponsor may treat each employee's HRA as covering a single life and is not required to include all covered lives, such as covered dependents, when reporting and paying the PCORI fee.
  
  Second, if the integrated group health plan is self-funded (including level funded plans), then the HRA is not subject to a separate PCORI fee as long as the HRA and the self-funded group health plan have the same plan sponsor and have the same plan year. In this case, one PCORI filing and fee for the self-funded group health plan is due, based on all covered lives, not just employees (as noted in the paragraph directly above).
  
  Note that Individual Coverage HRAs (ICHRAs) are also subject to the PCORI fee and must be reported and paid by the July 31, 2024 deadline.
• FSAs: Generally, Health Care Flexible Spending Accounts (FSAs) are not subject to PCORI fees as “excepted benefits.” However, if an employer contributes to an FSA that exceeds the lesser of $500 annually or a dollar-for-dollar match of the employee’s contribution, then the FSA is not considered an “excepted benefit” and is subject to PCORI fees. Similar to the HRA with a fully-insured integrated medical plan, the plan sponsor may assume one covered life for each employee with an FSA.
• HSAs: Health Savings Accounts (HSAs) are not subject to the PCORI since HSAs are not group health plans, but rather individual accounts.
• Excepted Benefits: The PCORI fee also does not apply to most dental and vision coverage since they are “excepted benefits,” exempt from PCORI fee requirements.

Click here for an IRS table summarizing which common health plans/arrangements are subject to the PCORI fee.

PCORI Filing and Payment Date Deadlines for 2024

As we previously reported last year, the IRS issued Notice 2023-70 in October 2023, increasing the PCORI fee for plan years ending on or after October 1, 2023 and before October 1, 2024, including plan years ending December 31, 2023, to $3.22 (increased from $3.00).

Click here for the IRS PCORI Fee Q&A webpage for additional information.

Short Plan Years

The PCORI fee still applies to a short plan year of an applicable self-funded health plan. A short plan year is a plan year of fewer than 12 months. The PCORI fee for the short plan year of an applicable self-funded health plan is calculated by multiplying the average number of lives covered during that plan year by the applicable dollar amount for that plan year.

PCORI Fee Filing Corrections

Self-funded group health plan sponsors may make corrections to a previously filed Form 720 by filing a Form 720-X, Amended Quarterly Federal Excise Tax Return, including adjustments that result in an overpayment.

Failure to File PCORI Fees

Even though the PCORI statute and final regulations do not include a specific penalty for failure to file or pay the PCORI fee, it is considered an excise tax. As such, any related penalty for failure to file a return or pay a tax would generally apply under IRC Section 6651.

PCORI Fee Records Retention

Even though the PCORI statute and final regulations do not include a specific record retention requirement, it is considered an excise tax. The Form 720 instructions direct taxpayers to retain excise tax records for at least four years from the latest of the date the tax became due, the date the tax was paid, or the date the claim was filed.

Employer plan sponsors should be prepared to substantiate the enrollment count and the method used to calculate the PCORI fees through their records since these fees are based on the number of covered lives.

Next Steps for Employer Plan Sponsors

• Self-funded plans: For employers sponsoring a self-funded group health plan (including level funded plans and HRAs), contact your Risk Strategies team for support with PCORI fee calculations and with any additional questions.
• Fully insured plans: As noted above, no action is required for employers sponsoring a fully insured group health plan since the PCORI fee is already baked into their monthly premium payments by their health insurance carriers.
• Finally, don’t forget another important health & welfare plan compliance filing deadline due on July 31, 2024 as well: Form 5500. Click here for more information on the upcoming Form 5500 filing deadline.

Risk Strategies is here to help. Contact us directly at benefits@risk-strategies.com.

[1] https://www.irs.gov/pub/irs-counsel/AM2013-002-1.pdf.