A Complete Guide to PCORI Calculation: What Employers Need to Know
According to the ACA, employers who provide certain health plans are liable to pay the Patient Centred Outcomes Research Institute (PCORI) fee. Even though this is one of the cheapest fees as compared to other medical fees, it is of utmost importance to know how to compute PCORI fee in order to be on the right side of the law. In this piece, we will talk about the fee assessment, how, who and when it is paid and what consequences are for non-compliance in efforts to provide a better understanding of PCORI fees.
What is the PCORI Fee?
The PCORI fee refers to patients’ satisfaction-liberated research, a charge individuals with some insurance or self-insured health plans pay to help in health-related research for bleeding edge health delivery. PCORI is the one which ensures that sufficient resources are available to support needed research and it is non profit. Quite a small fee applicable on qualified plans is used in PCORI fee assessment and is charged every single person.
Who Is Required to Pay the PCORI Fee?
This means that employers or health insurers offering self-insured health plans or fully insured plans will have to pay the PCORI fee. This includes:
- Sponsors of Self-Insured Plans: Employers or associations who administer their health plans rather than buy them from an insurer have the duty to determine and remit the PCORI fee. Self-insured plans may include the health benefits program covering the employees and dependents, along with wellness programs, health reimbursement accounts (HRAs) among other medical components.
- For Fully Insured Plans: With fully insured plans, it is the insurer who bears the burden of the fee but in most instances the employees will have that cost embedded in their premiums
However, certain plans are considered “excepted benefits”, such as exclusive dental and vision plans are usually not subject to the charge.
PCORI Fee: How Is It Assessed?
PCORI fee assessment does not involve many tedious calculation procedures, although as with other fees, correct numbers have to be obtained on the covered lives under the plan. Such lives encompass not only employees but also dependents, beneficiaries once covered tend to draw. The rest was lower than this current adjusted amount; the IRS restricts the amount of fee to cover adjustment to one for each year, in the vicissitude of inflation.
Techniques for the Evaluation of Covered Lives
Employers and insurers have several IRS grievances issued methods for how they determine the average number of lives covered under the health plan. There is some specificity to all the above mentioned methodologies however the underlying intention is to strive and get a population of every person (employees, spouses, and dependents) that was covered during the policy year. Now let us summarise the best methods used:
1. Actual Count Method
The Actual Count Method approaches the problem by determining the headcount of the persons insured by the plan on each day of the year under the plan. This method has its merits as it provides accurate daily coverage but it might be administrative heavy especially for larger plans.
2. Snapshot Method
This is probably one of the most frequently used methods since it brings ease to the counting process. With the Snapshot Method, you take a census of the number of covered individuals at consistent intervals within a year (for instance, every quarter on the first day or every month on the same day). The average figure is then taken in a year against which the fee is charged. There are two variations to this method:
- Snapshot Factor Method: It combines self-only employees with family coverage employees with a factor of 2.35 family members per employee as an average estimate in self-only and family coverage basing estimative variables on the number of employees.
- Snapshot Count Method: This is the simple needle in a haystack’ approach in the sense that it counts up the number of persons on particular dates and does not bother about factors.
3. Form 5500 Method
This method is available for employers who are in a position to file information on how many participants in Form 5500 these employers use for their plan. If your plan covers only employees (and no dependents), you can use the number of participants listed. For plans covering dependents, you will simply take the number of employees, participants and families covering members and multiply the number of participants by two.
Sample Cost assessment
Once you have made calculations on the number of covered lives, it is easy to compute the PCORI fee. This represents the cost chemo for to pay in the fees on a yearly basis, as this fee is set by the IRS. The rate for plan years starting on or after October 1, 2022 but less than October 1, 2023 is $3.00 per covered life per patient for the duration of the year.
So you want to use the Snapshot Count Method and you have determined that on average, your plan will cover about 200 lives for the year. To find the fee, we can do the following:
\text{PCORI Fee} = 200 \text{ (covered lives)} \times $3.00 = $600 ]
The total PCORI fee for this plan would be $600.
How the PCORI Fee is Charged and how it is Paid
Every year, the PCORI fee is reported and paid with the help of IRS Form 720 available at the IRS website (Quarterly Federal Excise Tax Return). The time for paying the fee falls on 31 July consistently at the end of the year following the end of the last plan year. If for instance your plan year closed on December 31 2023, your fee would be paid by July 31, 2024.
There are boxes where you will enter the number of covered lives and calculate your total liability by multiplying it by the applicable rate in the course of filling out Form 720. Payment can be made either electronically or by a check and as is required perennial payments should be made on time, otherwise, penalties or interests may be incurred.
Common Mistakes to Avoid
Despite how easy it may appear, the PCORI fee has a few common errors that can lead to underpayment or overpayment as well as penalties:
- Incorrect Counting of Covered Lives: Make sure you decide on the correct number of covered lives with the correct approach. Mistakes in this dominant factor will result in reduced fees.
- Missing Filing Deadlines: If Form 720 is not filed or the payment is not made by the deadline of July 31, generally penalties and more interest will accrue on this. Get that deadline on August 1st of every year.
- Failure to Recognize Plan Changes: In the event that your company decides to change its health plan in the midst of the coverage year, validate that you are using the right health plan at the correct period while calculating the number of covered lives and the fee.
The PCORI calculation however is not the most costly aspect of running a health plan but is critical for employers and insurers who fall under that scope. Submitting to one of the IRS-approved methodologies of getting the actual number of covered lives would help every employer avoid over or under charging. A return of Form 720 and the payment of the relevant fee before or by July 31st would eliminate the risk of facing any other unnecessary penalties.
Employers with self-insured plans need to make efforts to keep up with the changes of the PCORI fee amount to be charged since this amount is determined by the IRS from time to time. If you are not comfortable with the method of computing any of these filings, it is advisable to engage the services of a tax provider who will assist you in this.
By knowing how to impose and pay these requirements, the organisation will remain within the law and at the same time promote quality healthcare services in venture hearted patients and caregivers.