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Patient-Centered Outcomes Research Institute (PCORI) Tax

The Affordable Care Act imposes a fee on issuers and sponsors of individual and group health plans to fund the Patient-Centered Outcomes Research Institute for clinical effectiveness research. This fee is also referred to as the Comparative Effectiveness Research Fee.

Who pays the fee?

  • Fully insured group health plans: Insurer (CDPHP) pays the fee
  • Self-funded health plans: Employer pays the fee
  • HRAs: The employer is responsible for paying the fee. If the HRA is offered with a fully insured health plan, the employer must pay the additional PCORI fee for the HRA (in addition to the fee that the insurer will pay)  

When do the fees start?

Fees are effective as of the first plan year ending on or after October 1, 2012.

When is the fee due?
The fee is due no later than July 31 of the calendar year that follows the plan year end date. For example, fees for plans that ended between January 1, 2013 and December 31, 2013 are due on July 31, 2014.

How much is the fee?

  • For plans ending October 1, 2013 through September 30, 2014: $2 per covered life.
  • For plans ending October 1, 2014 through September 30, 2015: $2.08 per covered life.
  • For plans ending October 1, 2015 through September 30, 2019: The applicable dollar amount will be further adjusted to reflect inflation in national health expenditures, as determined by the Secretary of Health and Human Services.

The fee is tax deductible under IRS Tax Code Section 162(a).

How are the fees paid?
Insurers and plan sponsors (employers) must file Form 720, the Quarterly Federal Excise Tax Return to report and pay the annual fees.

How do you determine the number of covered lives*?
HRAs and Self-Funded Plans: There are several ways to count the number of covered lives. One acceptable method is the snapshot count method. Speak with your legal counsel for more guidance.

Snapshot count method: A plan sponsor (employer) may add the total of lives covered on a given date each quarter and divide that by the number of days for which the counts were made. For example, an enrolled participant count taken each quarter and averaged over the year. The dates should be similar each quarter (e.g., last day of the third month).

*For HRAs, enrolled employees count as covered lives; dependents do not count. The plan sponsor (employer) may assume one covered life for each employee enrolled in an HRA.

If you have a CDPHN-administered HRA, you can use your monthly reports on the secure employer site to assist with these calculations.

FSAs: Typically, FSAs will not be subject to PCORI fees if the FSA satisfies two conditions:

  • Maximum benefit requirement: The maximum benefit payable under the health FSA to any participant in the class for a year cannot exceed two times the employee’s salary reduction election under the health FSA for the year, or, if greater, the amount of the employee’s salary reduction election for the health FSA for the year, plus $500.
  • Availability requirement: Some other non-accepted group health plan coverage (for example: major medical coverage such as a PPO, HDHP, or HMO) must be made available for the year to the class of participants by reason of their employment.

PCORI Fees

Examples of plans
SUBJECT to the PCORI fee:

  • Medical plans
  • Prescription drug plans (including self-funded drug plans)
  • Health reimbursement arrangements (HRAs)
  • Retiree-only health plans (even though some are exempt from other PPACA mandates)
  • COBRA and other types of continuation coverage

Examples of plans
EXEMPT from the fee:

  • Separately insured dental or vision plans
  • Health savings accounts (HSAs)
  • Most flexible spending accounts (FSAs)