As you may know the Affordable Care Act imposed a new fee on issuers of individual and group health insurance policies and plan sponsors of self-funded plans. As previously noted in our blog, on December 5, 2012, the Internal Revenue Service (IRS) issued final regulations requiring health insurance issuers and plan sponsors of self-insured health plans to finance the Patient-Centered Outcomes Research Institute (PCORI) Trust Fund through the payment of an annual PCORI fee, which is treated like an excise tax by the IRS. The insurer is responsible for filing a recently-revised federal excise tax return (Form 720) and paying the required PCORI fee in the case of fully insured coverage; and the plan sponsor has this responsibility for a self-funded plan.
The liability for the fee is to be reported to the IRS on Form 720 and submitted with a related payment voucher, Form 720-V (which is attached to Form 720). The PCORI fees apply to policy or plan years ending on or after October 1, 2012, and before October 1, 2019.
The Form 720 instructions address who must report the PCORI fee, how to file the Form 720, and how to calculate the fee.
Specifically, you will want to note the following:
1. Fee for issuers of health insurance policies—The fee for a policy year ending before October 1, 2013, is $1.00, multiplied by the average number of lives covered under the policy for that policy year. The instructions describe four alternative methods to determine the average number of lives covered under a policy for the policy year.
2. Fee for plan sponsors of self-insured health plans—The fee for a plan year ending before October 1, 2013, is $1.00, multiplied by the average number of lives covered under the plan for that plan year. The instructions set forth three alternative methods to determine the average number of lives covered under a plan for the plan year.
3. Calculation of covered lives for health insurance policies—Determine the average number of covered lives during a policy year by one of the following methods:
- Actual count method
- Snapshot count method
- Member months method
- State form method
4. Calculation of covered lives for self-insured health plans—Determine the average number of covered lives during a plan year by one of the following methods:
- Actual count method
- Snapshot method
- Form 5500 method
5. Reporting and paying the fee—File Form 720 annually to report and pay the fee no later than July 31 of the calendar year immediately following the last day of the policy year or plan year to which the fee applies. Please note that if the Form 720 is filed only to report the PCORI fee, a Form 720 will not be filed for the 1st, 3rd, or 4th quarters of the year.