IRS Form 720 and Instructions
The Affordable Care Act imposes fees on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans to help fund the Patient-Centered Outcomes Research Institute. The fees, required to be reported annually on the 2nd quarter Form 720 and paid by its due date, July 31st, are based on the average number of lives covered under the policy or plan. The fees apply to policy or plan years ending on or after October 1, 2012, and before October 1, 2019. HRCTS will make available an Average Covered Lives Report to all clients that are responsible to file and pay the PCORI fee each year. You can request this report by contacting your Account Management Team.
The IRS recently released the revised Form 720 that insurers and sponsors of self-insured plans will use to pay the Patient-Centered Outcomes Research Institute (PCORI) fee. The fee is due by July 31 of the year following the calendar year in which the plan/policy year ended. Sponsors of calendar year plans must pay the 2013 fee by July 31,2014. Any plan ending January 2, 2013 – December 31, 2013 would have to pay the fee by July 31, 2014. Any plan ending January 2, 2014 - December 31,2014 will have to pay the fee by July 31, 2015. Plan sponsors can now complete their planning for payment of this fee. The IRS has also confirmed health insurers and self-insured health plan sponsors can deduct PCORI fees as ordinary and necessary business expenses. The fee is based on the number of covered lives including employees, retirees and COBRA participants along with their covered dependent spouses and children are all counted. However, only the employee, retiree or COBRA participant needs to be counted for an HRA or a health flexible spending account (health FSA) -- dependents covered by these accounts can be excluded.
The types of plans that must pay the PCORI Fees by July 31, 2014 include:
- Health/accident plans
- HRAs with a plan year that began 1/1/2013 that are not an excepted benefit (Employer contribution is greater than $500)
- Health FSAs with a plan year that began 1/1/2013 that are not an excepted benefit (Plan has employer contributions with the maximum reimbursement greater than two times an employee’s salary reduction election or employer contribution is greater than $500)
- Retiree plans
Calculating the Fee:
The amount of 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 for the year. For policy and plan years ending after Sept. 30, 2012, and before Oct. 1, 2013, the applicable dollar amount is $1. For policy and plan years ending after Sept. 30, 2013, and before Oct.1, 2014, the applicable dollar amount is $2. For policy and plan years beginning on or after Oct. 1, 2014, and before Oct. 1, 2019, the applicable dollar amount is further adjusted to reflect inflation in National Health Expenditures, as determined by the Secretary of Health and Human Services.
IRS Form 720 can be accessed at http://www.irs.gov/pub/irs-pdf/f720.pdf which is an interactive document so that can be completed on line.
The PCORI fees are entered on line 133 for the appropriate plans. See pages 8 and 9 of the IRS Instructions for completing these fields. Instructions can be found at http://www.irs.gov/pub/irs-pdf/i720.pdf.
Complete the fields on page 7 and make your check or money order payable to “United States Treasury”.
Additional information on the PCORI fees can be found here:
• Patient-Centered Outcomes Research Trust Fund Fee (IRC 4375, 4376 and 4377): Questions and Answers
• An IRS chart that shows which types of benefits the fee applies to: Application of the Patient-Centered Outcomes Research Trust Fund Fee to Common Types of Health Coverage or Arrangements
This information is provided for educational purposes only. It reflects the understanding of HRC Total Solutions and our partners using the available guidance as of the date shown and is subject to change. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or tax advisors. (June 14, 2014)