IRS Issues Q&As For PCORI Trust Fund Fees Due On July 31

The Internal Revenue Service has issued questions and answers regarding the fees imposed by Code Secs. 4375 through 4377 on issuers of specified health insurance policies and sponsors of applicable self-insured health plans. The fees, referred to as “PCORI fees,” help to fund the Patient-Centered Outcomes Research Institute (PCORI). Added by the Patient Protection and Affordable Care Act (ACA), the PCORI fees apply for policy and plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019. The IRS notes that the PCORI fees are due July 31, 2013. This is because issuers of specified health insurance policies and plan sponsor of applicable self-insured health plans must report and pay the PCORI fee for a policy year or plan year no later than July 31 of the calendar year following the last day of the policy or plan year.

Amount. The amount of the PCORI fee is equal to the average number of lives covered during the policy year or plan year multiplied by the applicable dollar amount for the year. For policy and plan years ending after Sept. 30, 2012, and before Oct. 1, 2013, the applicable dollar amount is $1. For policy and plan years ending after Sept. 30, 2013, and before Oct. 1, 2014, the applicable dollar amount is $2. For policy and plan years beginning on or after Oct. 1, 2014, and before Oct. 1, 2019, the applicable dollar amount is further adjusted to reflect inflation in National Health Expenditures, as determined by the Secretary of Health and Human Services.

Calculation. The PCORI fee is imposed on an issuer of a specified health insurance policy and a plan sponsor of an applicable self-insured health plan based on the average number of lives covered under the policy for the policy year or the plan for the plan year.

The PCORI fee final regulations were published on Dec. 6, 2012. The final regulations require issuers of specified health insurance policies to use one of four alternative methods—the actual count method, the snapshot method, the member months method or the state form method—to determine the average number of lives covered under a specified health insurance policy for a policy year. The final regulations require plan sponsors of applicable health plans to use one of three alternative methods—the actual count method, the snapshot method or the Form 5500 method—to determine the average number of lives covered under the applicable self-insured health plan for a plan year.

Generally, all individuals who are covered during the policy year or plan year must be counted in computing the average number of lives covered for that year. Thus, for example, an applicable self-insured health plan must count an employee and his dependent child as two separate covered lives unless the plan is a health reimbursement arrangement (HRA) or flexible spending arrangement (FSA).

Reporting and payment. Issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans will file annually Form 720, Quarterly Federal Excise Tax Return, to report and pay the PCORI fee. The Form 720 will be due on July 31 of the year following the last day of the policy year or plan year. Electronic filing is available but not required. Payment will be due at the time the Form 720 is due. Deposits are not required for the PCORI fee.

Issuers and plan sponsors who are required to pay the PCORI fee but are not required to report any other liabilities on a Form 720 will be required to file a Form 720 only once a year. They will not be required to file a Form 720 for the other quarters of the year.

Issuers and plan sponsors who are required to pay the PCORI fee as well as other liabilities on a Form 720 will use their Form 720 for the 2nd quarter to report and pay the PCORI fee that is due July 31. Only one Form 720 should be filed for each quarter.

Exceptions. The PCORI fee does not apply to exempt governmental programs, including Medicare, Medicaid, Children’s Health Insurance Program (CHIP) and any program established by federal law for providing medical care (other than through insurance policies) to members of the Armed Forces, veterans and members of Indian tribes (as defined in Sec. 4(d) of the Indian Health Care Improvement Act).

Also, health insurance policies and self-insured plans that provide only excepted benefits, such as plans that offer benefits limited to vision or dental benefits and most flexible spending arrangements (FSAs), are not subject to the PCORI fee. Further, health insurance policies or self-insured plans that are limited to employee assistance programs, disease management programs or wellness programs are not subject to the PCORI fee if these programs do not provide significant benefits in the nature of medical care or treatment.

The PCORI fee applies only to policies and plans that cover individuals residing in the United States. Thus, the PCORI fee does not apply to policies and plans that are designed specifically to cover employees who are working and residing outside the United States.

For more information, visit http://www.irs.gov/uac/Patient-Centered-Outcomes-Research-Trust-Fund-Fee:-Questions-and-Answers.

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