The IRS has released IRS Notice 2020-84 providing the adjusted $2.66 Patient-Centered Outcomes Research Institute (PCORI) fee per covered individual for health plan years ending on or after October 1, 2020 and before October 1, 2021, which includes 2020 calendar plan years. The fee has increased $0.12 per covered individual from last year (from $2.54).
As detailed in last year’s alert, Congress surprisingly extended the PCORI fee for another decade (until 2029) in the Further Consolidated Appropriations Act, 2020. Despite the originally scheduled sunsetting of the fee in the 2019 filing (for calendar plan years), PCORI filings are now here to stay as a summer staple for the foreseeable future.
The annual PCORI fee must be reported and paid to the IRS by August 2, 2021 (July 31st is a Saturday) via the second quarter Form 720.
What is the PCORI Fee Used For?
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 mission of the institute is to improve healthcare delivery and outcomes by producing and promoting high-integrity evidence-based information that comes from research guided by patients, caregivers and the broader health community.
The institute currently maintains a robust portfolio of patient-centered outcomes research that addresses a variety of high priority conditions and topics.
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 (the employer) is responsible for paying the PCORI fee for self-insured health plans. Self-insured plans include so-called “level funded” plans.
Action Item: 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. For full details, see our post: ACA and HIPAA Excepted Benefits.
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-insured 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
Upon reinstatement of the fee in 2020, the IRS allowed plan sponsors an alternative method of calculating the average number of covered lives. Plan sponsors were able to use any reasonable method to calculate the average number of covered lives. This guidance was not extended to the 2021 filing, and employers must use one of the above three methods.
How Much Do I Need to Pay on the July 2021 Form 720?
- Plan Years Ending January 2020 – September 2020: $2.54 per covered life (including spouses/dependents)
- Plan Years Ending October 2020– December 2020: $2.66 per covered life (including spouses/dependents)
For calendar plan years, the applicable rate for the 2020 plan year will be $2.66 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 PCORI fee also applies to short plan years, defined as any plan year less than 12 months.
The fee is due July 31st (August 2nd in 2021) of the year following the last day of the plan year, including short plan years.
- Employer with a calendar plan year first changes to a self-insured medical plan (including level funded) effective January 1, 2021. Employer must file the first Form 720 to pay the PCORI fee in July 2022 based on the TBD PCORI rate for next year.
- Employer with a July 1 plan year first changes to a self-insured medical plan (including level funded) effective July 1, 2020. Employer must file the first Form 720 to pay the PCORI fee of $2.66 per covered life in July 2022.
- Employer with a self-insured medical plan has short plan year from July 1, 2020 through December 31, 2020 to transition to a calendar plan year as of 2021. Employer must file the Form 720 in July 2021 to pay the PCORI fee for both the full plan year ending June 2020 ($2.54 per covered life) and the short plan year ending December 2020 ($2.66 per covered life). The PCORI fee amount is prorated for the short plan year, as detailed in the IRS PCORI Fee FAQ.
The IRS has published a table of the applicable filing deadline and rate for each plan year ending date.
How do we file the PCORI fee?
The PCORI fee is filed on the second quarter IRS Form 720, which is due by August 2, 2021 (July 31st is a Saturday in 2021). Consult the IRS Instructions for Form 720 for direction on completing the form (see pages 8-9).
Another August 2 Deadline: Form 5500 Filing
One other 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 the end of the 7th month after the end of the plan year, normally July 31st. Since this date is a on Saturday in 2021, the due date falls on the next business day – August 2, 2021.
Plans are permitted to file a Form 5558 with the IRS for an automatic 2 ½-month extension of this deadline (to October 15, 2021 for calendar plan years).
See our 2021 ABD ERISA for Employers Guide for more details.
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).