By: HUB’s EB Compliance Team
Although many plan obligations are tied either to the calendar year or the plan year, there are two Affordable Care Act (“ACA”) items that arise annually during the summer months: the PCORI fee and MLR rebates.
PCORI (Patient-Centered Outcome Research Institute) Fee
- What is the PCORI fee? Also known as the Comparative Effectiveness Research (or CER) fee, this is a federal assessment paid by insurers and sponsors of self-funded health plans to help fund the Patient-Centered Outcome Research Institute (hence, PCORI).
- Who pays? For employers that only have fully-insured plans, the insurer will pay. (Note: Although the carrier will transmit payment to the federal government, be aware that all carriers pass-through the full cost of PCORI/CER charges to the policy holder.) For employers that have a self-funded plan (including health reimbursement arrangements, or HRAs), the employer pays.
- How much is it? It depends on when your plan year ends.
- For plans whose plan year ended between January 1, 2019 and September 30, 2019, it is $2.45 per covered life for filings due this year.
- For plans whose plan year ended between October 1, 2019 and December 31, 2019, the per covered life amount $2.54.
- How is it calculated? There are special rules for calculating covered lives (and some simplifying assumptions that employers can use). Those still apply. Additionally, since the PCORI fee was reinstated in December (it was originally scheduled to lapse last October), the IRS is giving a one-time ability to use “any reasonable method” to determine covered lives just for plan years ending on or after October 1, 2019 and before October 1, 2020. More details are available in this recent IRS guidance.
- How is it paid? It’s paid using IRS Form 720 for the second calendar quarter.
- When is it due? It is due by July 31.
- Is this a permanent fee? As of now, the fee is only effective for plan or policy years ending on or after October 1, 2012 and before October 1, 2029 and is scheduled to sunset after that. As noted above, it was originally scheduled to sunset for plan years ending before October 1, 2019, but was extended for 10 years earlier this year.
- Where can I get more information? See the IRS PCORI webpage here.
MLR (Medical Loss Ratio) Rebate
- What is the MLR? If an insurer does not spend enough of the premiums it collects on either claims or health improvement activities, it has to issue this rebate. If an insurance carrier does not spend at least the 80% (85% in large group), the insurance carrier is required to rebate part of the premium back to employers so that it meets the 80% (or 85%) medical loss ratio (hence, MLR) threshold. Special rules (described below) direct how plan sponsors can use MLR proceeds.
- Who pays? Insurance carriers pay. This does not apply to self-funded group health plans.
- How much is it? It depends on the insurer’s book of business and the coverage the employer has. Some rebates are small and others can be significant. The rebates are never based on an individual employer group health plan. Depending on the carrier’s overall book of business, a particular group health plan with low loss ratio individually still might not receive any MLR rebate because of claims incurred by other employers with that same carrier. However, based on preliminary data, the Kaiser Family Foundation estimates that carriers will pay $2.7 billion in rebates this year across all lines of coverage. While most of this expected rebate will go to individual health insurance, the Foundation estimates that a significant portion will be paid to employer plans. Because the 2020 rebate estimate is based on 2017-2019 data, it does not reflect individuals’ inability to access the health care providers during the COVID-19 pandemic. However, it is quite possible that similar rebates could be seen in 2021 in part for that reason.
- What do I do with it? It depends. If some of the premium is paid by employees and dependents (including former employees and dependents on COBRA), then they may be owed some portion of the rebate. The amount may depend, in part, on how the plan document defines required participant contributions. If the rebate is small, you may also be able to use it for health plan improvement activities. If you aren’t sure what to do, HUB has an MLR Rebate Decision Tree that we can provide.
- When is it paid? Insurance carriers must issue the rebates by August 1 of each year.
- How will I know if my carrier is paying an MLR rebate? Affected carriers have to issue a written notice to plan sponsors informing them about a pending MLR rebate. Moreover, the carrier is also required to distribute notification to plan participants. In many cases, this means participants may be contacting their employer to ask about the size of a rebate and how it will be paid based on the carrier’s notification letter.
- Where can I get more information?
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.