Anna Aella, President
The Health Exchange Advisers
The Patient Protection and Affordable Care Act imposes a new Patient-Centered Outcomes Research Institute fee (PCORI), formerly the comparative effectiveness research fee, on plan sponsors and issuers of individual and group policies. This fee is due July 31st.
Purpose of the Fee
The Patient Centered Outcomes Research Institute’s assessed fees are to be contributed to the Patient-Centered Outcomes Research Trust Fund (PDF) that will fund comparative effectiveness research. The research will evaluate and compare health outcomes and the clinical effectiveness, risks, and benefits of two or more medical treatments and/or services.
Who Pays the Fee
Under the IRS final rule, issuers and plan sponsors are responsible for paying the fee, which is treated like an excise tax by the IRS. A federal excise tax return (Form 720) reporting liability for the fee must be filed by July 31 of the calendar year immediately following the last day of the plan year.
Plans Subject to PCOR fee:
• Medical Plans
• Prescription Drug Plans
• Self-insured Vision & Dental Plans (if no separate election or premium)
• Some Retiree Only Health Plans
• Health Reimbursement Accounts/buydowns
Calculating the Fee
The fee is equal to the average number of covered lives for the policy year times the applicable dollar amount.
• For policy years ending on or after Oct. 1, 2012, and before Oct. 1, 2013 – the applicable dollar amount is $1.
• For policy years ending on or after Oct. 1, 2013, and before Oct. 1, 2014 – the applicable dollar amount is $2.
• For policy years ending in any fiscal year beginning on or after Oct. 1, 2014 – the applicable dollar amount is the prior fiscal year’s dollar amount plus an adjustment for medical inflation.
Determining Average Number of Lives
Fully Insured Plans
The IRS proposed four methods for determining the average number of covered lives. Issuers must use the same method consistently for the duration of any year and the same method for all policies subject to the fee.
• Actual Count – Count the total number of covered lives for each day of the policy year and divide by the number of days in a year.
• Snapshot Method – Count the number of members on a single day during a quarter and divide the total by the number of dates on which a count was made.
• NAIC Member Months Method – The issuer determines the average number of covered lives based on member months reported to the National Association of Insurance Commissioners (NAIC) on the Supplemental Health Care Exhibit for the calendar year. The average number of lives in effect for the calendar year equals member months divided by 12.
• State Form Method – This method is for issuers that are not required to file the NAIC Exhibit. These issuers may determine the number of covered lives using a form that is filed with the issuer’s state of domicile, if the form reports the number of covered lives in the same manner as the NAIC Supplemental Exhibit.
Self-funded Plans
Self-funded plans may determine the average number of covered lives by using any of the following methods. Like fully insured plans, plan sponsors must use the same method consistently for the duration of any year and the same method for all policies subject to the fee.
• Actual Count – Count the total covered lives for each day of the plan year and divide by the number of days in the plan year.
• Snapshot dates – Count the total number of covered lives on a single day in and divide the total by the number of dates on which a count was made.
o Snapshot Factor – In the case of self-only coverage, determine the sum of: (1) the number of participants with self-only coverage, and (2) the number of participants with other than self-only coverage multiplied by 2.35.
• Form 5500 Method – For self-only coverage, determine the average number of participants by combining the total number of participants at the beginning of the plan year with the total number of participants at the end of the plan year as reported on the Form 5500 and divide by 2.
Special Counting Rule for Multiple Self-funded Plans
Under the final rule, if the plan sponsor of a self-funded plan has more than one self-funded plan (e.g., one for medical, another for pharmacy) it may treat them as a single self-funded plan for purposes of this fee to avoid double counting of the members. This special counting rule only applies to self-funded plans in the proposed rule.
Contributing author, Anna Aella, is the President of The Health Exchange Advisers. She may be contacted at healthexchangeadvisers@gmail.com.
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