Are you familiar with the PCORI fee?
If your business purchases group health insurance through an insurance company, you may not know about this government tax. Group health insurance companies are required to take care of this fee on behalf of your business. They write the cost of this fee directly into your premium.
However, if your business has a self-funded group health insurance plan or uses HRAs to offset high deductibles, your business must pay the PCORI fee.
What exactly is the PCORI fee? What do you need to know if your business self-funds its group health insurance or provides HRAs to its employees?
As an employee benefits advisor, it’s my job to help my clients understand government requirements regarding their health insurance. It’s my job to help them stay in compliance.
The PCORI fee is one of those requirements that I start reminding my clients about this time of year. And that’s what this article is about: the nuts and bolts of the PCORI fee.
This short guide covers the five most important questions about the PCORI fee. They include:
- What are PCORI fees?
- How much is the PCORI fee?
- How does an employer determine the average number of lives covered on their last group health insurance plan?
- When is the PCORI fee due, and how do we submit it?
- What happens if we submit our PCORI fee after July 31?
Please note that in this article, I focus on businesses that are self-funded or utilize HRAs.
What is the PCORI fee?
The PCORI fee is a government fee established by the Affordable Care Act that helps fund the Patient-Centered Outcomes Research Institute (PCORI).
This institute is a government-funded institute is charged with helping “to improve the quality and relevance of evidence available to help patients, caregivers, clinicians, employers, insurers, and policymakers make better-informed health decisions.”
This fee is imposed on health insurance companies and organizations that self-fund their group health insurance.
Businesses that utilize HRAs for their employees are also considered self-funded and, therefore, have to pay the PCORI fee.
How much is the PCORI fee?
The PCORI fee is based on the average number of lives covered under an insurance policy or a self-funded insurance plan.
This fee is not just based on the number of employees on an insurance plan.
The number of covered lives also includes spouses and dependents, sometimes retirees, and former employees who are utilizing COBRA benefits.
At most businesses, the number of lives on a plan fluctuates throughout the year.
The number of individuals covered by an insurance plan may increase or decrease throughout the year due to employees moving on to another job or retiring, spouses or dependents leaving the plan, or former employees requesting COBRA benefits.
The PCORI fee is “equal to the average number of lives covered during the policy year or plan year multiplied by the applicable dollar amount” determined by the Secretary of Health and Human Services.
This dollar amount is adjusted each year to reflect inflation. For plans ending after October 1, 2021, and before October 1, 2022, the applicable dollar amount is $2.79.
Put into practice, if your plan has an average of 30 lives that it covered in the last policy year, your business will owe $83.70.
How does an employer determine the average number of lives covered on their last group health insurance plan?
Determining the average number of lives covered on your insurance plan can be a bit of a challenge.
If you have group health insurance through an insurance company, the insurance company will make that determination. You will not need to pay the fee directly. The insurance company considers the PCORI fee and includes them in your group health insurance premium.
If you are self-funded or utilize an HRA, you will need to calculate the number of lives covered on your last insurance plan.
There are three methods to do this:
- Actual Count Method
- Snapshot Method
- Form 5500 Method
Let’s take a look at these methods in greater detail.
Actual Count Method
In the actual count method, you need to count the number of lives covered each and every day of your plan. This is the most accurate method.
If you use TPA services or have a payroll company, these companies can run a PCORI report for you.
If you don’t have a TPA or payroll company, you will need to have someone from your business record the number of lives covered every day of the past policy year.
Because this can be a complex process for many businesses, the two other acceptable methods to determine your PCORI fee may be easier for you.
Snapshot Method
To use the snapshot method, you will need to take a count of covered lives on one or more days during each quarter of the calendar year. Then, you add the total number of covered lives on those dates and divide by the number of dates used.
You will also need to use the same number of dates for each quarter and make sure those dates are within three days of the comparable dates used in the other quarters.
5500 Method
This is the simplest method for calculating your PCORI fee. In this method, you simply take a count of covered lives on the first day of your last policy year, add the total number of covered lives on the last day of the policy year, and divide by two.
This may seem appealing but is the least accurate in making sure you’re not overpaying the PCORI fee.
Also, when you use the 5500 method, you must ensure that the relevant 5500 form is filed by July 31.
Some businesses run all three methods to determine which method is best for their business.
When is the PCORI fee due, and how do we submit it?
Self-insured health plans must file Form 720 each year to report and pay the PCORI fee by July 31.
Form 720 is a quarterly tax form also used to report various taxes, including environmental taxes, communication and air transportation taxes, fuel taxes, retail taxes, and a host of other taxes. Part II of this form includes the PCORI fee.
Even if your business uses this form for other quarterly taxes, you must submit this form at the end of the second quarter by July 31 for your PCORI fee.
What happens if we submit our PCORI fee after July 31?
You will be subject to fines if you submit your PCORI fee late. The penalty for filing late can be as high as 5% of your PCORI fee each month. That penalty is capped at 25% of your PCORI fee.
There are no extensions for filing and submitting your PCORI fee.
Are you looking for an employee benefits advisor to partner with you in your group benefits program?
Employee benefits are complex and involved. Employee satisfaction, rising group health costs, government compliance, and competitive employee recruitment are all significant issues when it comes to creating your group health program.
Does your employee benefits advisor have a plan to address these issues?
At Baily Insurance, our team is dedicated to:
- Helping you create the most robust benefits package while meeting your company’s financial goals
- Partnering with your HR team to make enrollment of employees easy and efficient
- Providing abundant resources and products when it comes to additional benefits like group vision or dental, group life insurance, or voluntary products
- Helping clients maintain government compliance.
If you’re looking for a benefits team to roll up their sleeves and work tirelessly to assist you, our team may just be the solution you need.
By calling us (724-627-6121) or filling out the form below, we can get time on our calendar for an introductory meeting. In this fifteen-minute meeting, we can quickly assess if our team would be a good fit for your benefits needs.
We’re looking forward to hearing from you.
