June 12, 2014
Federal health care reform law imposes new fees on health insurance carriers and self-funded plans to fund a new entity known as the Patient-Centered Outcomes Research Institute. The Institute has been established to perform "comparative effectiveness research" (CER); which generally refers to comparative assessment reporting to the government about the relative success rates of various medical procedures. Although both carriers and self-funded plan sponsors must pay these fees -- even when a carrier pays the fee, the new costs will ultimately be passed along in premiums for an insured group health plan. The new entity and function gives the fee its name (sometimes referred to as "PCORI assessment" or "CER fees").
Most plans paid the fee last year, but this will be the first payment year for some organizations. The IRS issued final regulations regarding who must pay the fee, the amount of the fee, how the fee is reported, and other matters. Also available on the IRS website are questions and answers relating to the payment of the PCOR fees. (See links below in Helpful Links.)
Applicable Fee and Cycle
General rule: Plan sponsors of insured programs will rely on the insurance carrier to administer the CER/PCORI fee (and pass the cost on to the employer).
For self-funded health plan sponsors directly paying the fee, the following assessment applies: For a plan year ending on or after October 1, 2013, the fee is $2.00 per covered life. Since a calendar year plan ends on December 31, 2013 (after October 1, 2013), such a plan would owe $2.00 per covered life by July 31, 2014. (By contrast, the fee is $1.00 for a plan year ending before October 1, 2013.)
Please note: Most plan years do not end on the first day of the month. Consequently, this unusual timing rule has the effect of generally applying to plan years ending on the last day of the month. For example, with a November 1, 2012 plan year anniversary date, October 31, 2013 is the day such a plan year would end after the October 1, 2013 "trigger date." The focus centers on looking at what is the last day of the plan year in relation to the trigger date.
Extrapolating from the rule noted above, the following payment cycle would apply:
CER/PCORI fees are due by July 31, 2014. How much is owed will depend on when the last day of the plan year falls.
- For plan years ending October 1, 2012 through September 30, 2013, employers must pay the first $1 per covered life fee by July 31, 2014.
- For 2013 calendar plan years, employers must pay a $2 per covered life fee by July 31, 2014.
- For 2014 calendar plan years and plans ending October 1, 2013 through September 30, 2014, employers must pay a $2 per covered life fee by July 31, 2015.
IRS Form 720
Plan fees must be paid via IRS Form 720 Quarterly Federal Excise Tax Return, which has been updated to reflect the CER/PCORI fee. (See link below in Helpful Links.)
Is the CER/PCORI fee permanent?
The PCORI fee is not intended to be permanent. Under current law the fee is effective for plan years ending after September 30, 2012, and before October 1, 2019. Of course, Congress holds the authority to extend the fee cycle by enacting new legislation to do so.
Excepted Benefits Are Not Subject
The fees do not apply if substantially all of the coverage is composed of "excepted benefits" as defined by regulation. Excepted benefits refers to a specific category of limited benefits including (among others), most health FSAs, and many dental and vision programs when they satisfy certain conditions, and most supplemental coverage. (To the extent possible, plan sponsors may wish to consider structuring benefits to qualify as excepted benefits-to mitigate fees.)
Retiree-Only Plans Are Subject
Although retiree-only plans are not required to comply with certain health care reform provisions, the applicable exception for CER/PCORI fees does not apply and therefore such plans are generally subject to the fee (unless for example, the retiree program is delivering an "excepted benefit").
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The discussion presented in this document is informational in nature and is not (and should not be construed as) a legal opinion or legal advice. We would be happy to discuss any information above with you or your attorney.