Employers Face Important Affordable Care Act Deadline and Fee on July 31st
Monday, May 31, 2021
The Affordable Care Act requires employers who sponsor self-funded health plans (including certain HRAs) to pay the Patient-Centered Outcomes Research Institute (PCORI) fee to the IRS. The fee is based on the average number of covered lives under the plan and must be reported once a year on the second quarter IRS Form 720 and paid annually by July 31st. For the 2021 payment cycle, the due date has been extended to August 2nd since July 31st falls on a Saturday. Although Form 720 is a quarterly form, for PCORI, Form 720 is filed once annually.
The PCORI fee was originally scheduled to expire in late 2019, but federal legislation passed in December 2019 extended the PCORI fee obligation for all plan years ending before October 1, 2029. There was no change to the type of plan subject to the PCORI fee. The government simply extended the original sunset date from 2019 to 2029.
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Here what you need to know to be in compliance.
Which plans are subject to the fee?
The PCORI fee applies to all medical plans and some Health Reimbursement Accounts (HRAs). Health insurance carriers pay the fee directly to IRS in the case of fully-insured medical plans. For self-funded medical plans, however, the plan sponsor is responsible for filing and paying the fee.
An HRA that is bundled with a fully-insured medical plan is subject to the fee. Although the insurer pays the PCORI fee for the underlying insured medical plan, the plan sponsor must pay a separate PCORI fee for the self-insured HRA. However, an HRA that is bundled with, and has the same plan year as, a self-funded medical plan is not subject to a separate fee.
How much is the fee and when must it be paid?
The amount of the PCORI fee is equal to the average number of lives covered during the plan year multiplied by the applicable dollar amount as shown below.
When calculating the fee for a self-funded medical plan, employees and dependents are counted as covered lives. When calculating the fee for an HRA, only employees are counted as covered lives. The amount of the fee will depend on when the plan year ends:
Is the PCORI fee tax-deductible?
In June 2013 the IRS issued a legal opinion that the PCORI fee is a tax-deductible expense (under Code section 162(a)) for self-insured plan sponsors and for health insurers.
Sam Slade is Managing Director, Employee Benefits, at The Hilb Group of New England, where he delivers consulting and brokerage services to local employers. He has extensive experience in all aspects of employee benefits, including underwriting, plan design, communications, compliance, and analytics, with a particular focus on alternative funding and self-insurance. Sam lives in South Kingstown with his wife and three sons.
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