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). 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 via the second quarter Form 720.
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.
Fully Insured Medical Plans: Health Insurers (aka insurance carriers) 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 (aka the employer) is responsible for paying the PCORI fee for self-insured health plans. Self-insured plans include so-called “level funded” plans. The employer must file the Form 720 and pay the fee.
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.
The PCORI fee also does not apply to health FSAs (which must be an excepted benefit to comply with the ACA) or HSAs (which are not a group health plan).
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.
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).
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).
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.
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.
The IRS has published a table of the applicable filing deadline and rate for each plan year ending date.
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).