Who Is Required To Complete The PCORI Tax: All You Need To Know For Employers And Health Plan Sponsors
In the context of American health care, taxes and fees are interesting in that they tend to cut across such lesser known responsibilities as the Patient-Centred Outcomes Research Institute (PCORI) Fee. The PCORI fee assists in financing research that ultimately contributes towards better decisions in the provision of medical services, even though the quite often undetermined and thus ambiguous burden to bear this fee lies on corporate entities and plan sponsors. In this post, we will specifically outline who it is that is charged with the payment of PCORI fee, what it is, and how to conduct oneself efficiently so as to be in compliance with the law herein.
What is the PCORI Fee?
The PCORI Fee is one such tax introduced in 2010 by the Affordable Care Act (ACA) for purposes of supporting the Patient-Centred Outcomes Research Institute, which undertakes research that assesses how useful various healthcare interventions are. PCORI’s purpose is to provide patients, doctors, and policymakers with the data necessary to improve health and healthcare otherwise lost in the further development of the health care system through the study of outcomes.
The applicable health insurance policies and self insurance health plans have the fee levied to them. Although the fees and taxes imposed under the PCORI were designed to terminate in 2019, new laws reinstated it until 2029, implying that relevant persons are still legally obliged to make such payments on an annual basis.
Who is Required to File and Pay the IRS Form A PCORI Fee?
The advantages of self-insurance may also be transformed into a liability of these sponsors, more specifically the self-insurer maintained health plans and the insurers of health insurance contracts. Which entities are obliged to make a payment depends on the way how the health plan is structured. Below are the broad class definitions:
1. Health Insurance Providers
The PCORI fee shall be paid for any fully insured health plan by the insurance carrier or issuer. This implies that where your organisation has sponsored a fully insured plan, it is the insurance company that takes care of the fee on your behalf, you do not have to worry about paying up some extra funds.
2. Self-Insured Health Plan Sponsors
The reason is that if your Company sponsors a self-insured health plan, then, you, being the employer or the plan sponsor, will be required to pay the PCORI fee. Self-insured plans are defined as those where the employer incurs the exposure risk of providing health benefits to employees instead of transferring this risk to an insurance company. These kinds of plans may consist of:
- The major medical insurance
- Health Reimbursement Accounts
- Flexible Spending Accounts (in so far as they are not “excepted benefits”)
- Minimum essential coverage insurance
3. Health Reimbursement Arrangements (HRAs)
Since HRAs are self-funded arrangements, employers therefore reimburse employees for qualified medical expenses. If your business offers HRA; then you will remit the PCORI fee for those employees who participate in the HRA. This holds true even when combined with the HRA, a fully insured program is offered by the employer and this is the only reason, administrative costs for the HRA will still be hard.
4. Government Organizations and Not for Profit Organizations
When a government organisation or nonprofit covers a health insurance plan on a self-funded basis, they also become liable for the PCORI fee. In this scenario, the fee is typically borne by the particular division or agency that offers the health plan whereas NGOs are more like private employers with less freedom to consider.
5. Plans in the Employer and Employee Union
For health plans or multiemployer plans that are sponsored by unions, the obligation to pay the PCORI fee is usually held by the board of trustees of the plan or by the responsible administrative body of the plan. Such plans usually involve varying employers and employees and thus it will be the trustee accounting board that will compute and remit the fees on the participants’ portion.
6. COBRA Plans and Health Plans for Retirees
Where your company provides continuing or retiree health benefits through a COBRA continuation plan or plan for the outside health retiree’s coverage, the employer may also be levied with the PCORI fee. In the case of self-insured COBRA or retiree plans, the cost will be on the employer (or plan sponsor). While the insurance issuers pay the fee for fully insured plans like COBRA or retiree plans.
Income Theory – How is the PCORI Fee Computed?
The health insurance PCORI fee is determined by the average number of lives covered under the health plan of the policy year or plan. The IRS has provided several methodologies as far as the covered lives counting is concerned depending on the plan type being offered. For instance one can turn to the Snapshot Method or Actual Count Method in computation of participants in a self-insured plan.
The fee amount is routinely changed on yearly basis due to the impressive increasing rate of the average national per capita amount of health care expenditures. For instance, in the period between 1st October 2022 and ending 30th September 2023 policy year, charges levied are at $3.00 per covered life. The business is required to monitor the changes in respect of the PCORI fee charge applicable in order to avoid any miscalculations during payment years.
Determination of Who Should Pay the PCORI Fee and Methods of Collection
The payment of the PCORI fee is paid once in one financial year which is done by making an application of IRS Form 720, referred to as an Quarterly Federal Excise Tax Return. Despite it being titled as an excise tax return, wherein most forms 720 are used for purposes of excise tax charge, it bares annual returns like the PCORI fee. Applicable plan or the policy year ending Form must be submitted by the businesses on the 31st of July of the following year after the plan or policy year ends.
For example, if your plan year covered the period up to December 31, 2023, your payment of the PCORI fee and 720 must be made by the end of July 31, 2024. Although it is referred to as "quarterly return," you need not file the form more than once a year to cover PCORI fee.
Common Mistakes to Avoid
A fee for PCORI is owed and filed by businesses, but they commit unintentional errors that can be or should be avoided to avoid enforcement action or missing filing deadlines. Here are a few common mistakes:
- Not Including HRAs: Other businesses do not realise that in as much as they have a comprehensive insured plan, they will still be required to copy the PCORI fee for any HRAs that they have. Make sure once the fee is calculated, all applicable plans, including those excluded, are addressed.
- Counted Wrongly Estimates on the Lives Covered: Employ the appropriate approach to the calculation of the number of lives covered under the plan. This includes employees, dependants and other persons covered under the plan. Using incorrect estimates will result in either underpayment or overpayment of the fee.
- Missing the Deadline: The imposition of the PCORI fee takes place on an annual basis as from the end of July 31st. Make a note of this in your diary as this will ensure the payment and filing are done in a timely manner.
Even though the PCORI fee might appear as a mere drop in the ocean compared to the overall tax bill, it is important to know who bears the burden of such a fee and more important how to meet such a tax. For instance, if your company provides a self-funded medical care plan including an HRA or COBRA, you will have to make the required fee assessment and make payment by the due date. Such payments are made on behalf of policyholders by the issuers of fully insured plans while in Self insurance the employers are liable for their own plan expenses.
Monitoring the PCORI fee will also help you avoid non compliance penalties and regulatory restrictions on any of your healthcare plans. In case you find it difficult to understand what responsibilities you have or how to make an accurate assessment of the fee, a tax expert or benefits consultant could be of great help.