PCORI Fee Payment Reminder: Due July 31, 2020

The Patient-Centered Outcomes Research Institute (PCORI) fee was supposed to expire in 2020, and the last payment for calendar year plans was supposed to be on July 31, 2019. However, at the end of 2019, federal legislation passed extending the fee for another ten years. Even though the federal government has delayed many tax deadlines due to COVID-19, they have not delayed the PCORI fee payment deadline. Employers with calendar-year and non-calendar year self-insured group health plans that ended in 2019 are required to pay the fee by July 31, 2020.

The PCORI fee is a small federal assessment on private health plans that funds a government-sponsored center to research the effectiveness of various medical care treatments. Health insurance carriers are responsible for paying the fee on behalf of all fully-insured health plan participants.  However, all self-insured medical plans, including level-funded plans, health flexible spending accounts (FSAs) that do not qualify as an excepted benefit plans, and health reimbursement arrangements (HRAs), have to pay the PCORI fee directly. The Internal Revenue Service (IRS) has a helpful chart available to assist in determining which types of plans need to pay the PCORI fee on their own, or if their health insurance carrier needs to make the payment for them.

To pay the assessment, employers must complete and file Form 720.  Employers may file this excise tax form quarterly for other reasons, but PCORI fees are due just with the second quarter’s form.

A group health plan uses the number of all lives covered by the plan multiplied by the base fee amount to calculate their total annual PCORI fee. This year, self-funded groups with plan years that END between January 2019 through September 2019 use the amount of $2.45 per covered life to calculate their PCORI payment.  For self-funded plans that end between October 2019 through December 2019, the rate is $2.54 per covered life.  For all plans, the PCORI fee is due by July 31, 2020.

Even though the PCORI payments are not due for more than a month, groups are advised to determine what they owe and to get their documentation ready now. The total number of people covered by the group plan, including all dependents, determines the tax amount. There are several methods an employer plan can use to make that count, and now is a good time to document the 2019 calculation.

The one piece of federal relief provided regarding the July 2020 PCORI fee, is some fee calculation flexibility outlined in IRS Notice 2020-44.  In a typical year, there are three approved methods a self-funded plan sponsor may pick from to determine their PCORI fee amount. In recognition that many groups with plan years that ended on or after October 1, 2019, and before October 1, 2020 thought they would not have to calculate and pay a PCORI fee any longer, the IRS decided to give these plan sponsors a bit of relief.

This year, self-funded groups with plan years that END between January 2019 through September 2019 may only use one of those three regulatory-approved methods listed below to calculate their fee.

  1. Actual Count Method:The plan sponsor adds the totals of lives covered for each day of the plan year and dividing that total by the total number of days in the plan year.
  2. Snapshot Method:The plan sponsor uses the total number of lives covered on one date (or more dates if an equal amount of days are used in each quarter) during the first, second or third month of each quarter, and dividing that total by the number of dates on which a count was made.
  3. Form 5500 Method:The plan sponsor uses the number of participants reported on the Form 5500.

However, for 2020 only, self-funded groups with plan years ending on or after October 1, 2019, and before October 1, 2020, may use any of the three methods listed above.  Or, as an alternative they many use any other reasonable and documented method to calculate their average number of covered lives. However, it is important to note, any eligible plan sponsor that decides to use a reasonable alternative method for 2020 must apply that method consistently for the duration of the plan year.