The IRS has increased the fee that sponsors or insurers of self-insured health plans pay annually to help fund the federal Patient-Centered Outcomes Research Institute (PCORI) trust fund. The fee for 2022 is due on August 1 since July 31 is on a Sunday this year.
The fee is applied to health plans for the previous calendar year. As per the Notice 2021-04 issued by IRS on December 21, the latest fees for this year are according to the following:
For plan years that ended on or after October 1, 2021, or before October 1 2022 (including calendar year plans), The cost will be $2.79 per person covered by the plan. This is an increase from $2.66 the previous year.
For plan years that end on or after October 1 2020, and before October 1 2021, the fee amounts to $2.66 per person, increased from $2.54 the year prior.
Self-insured employers pay the PCORI annual fee direct to IRS. For fully insured companies, the fee is borne by the insurance company. However, the cost could be included in premium increases.
The fees are recorded and are paid annually by submitting IRS Form 720 (Quarterly Federal Excise Tax Return) and must be paid on July 31 of the calendar year following the close in the year of a plan except if this date is falling on weekends or federal holidays.
Fee Applies Through 2029
The Affordable Care Act established the cost to support a Washington, D.C.-based institute that studies the comparative efficacy of medical treatments. The fee was initially applied only to plans that had terms expiring after September 30, 2012, and before October 1, 2019. However, in the context of the Bipartisan Budget Act of 2019, the annual PCORI filing and fees were extended by an additional 10 years through 2029.
"The PCORI fee is calculated using the average number of lives that are covered by the plan or policy and the amount of money that is applicable for the policy year or plan year", stated William Sweetnam, the legislative and technical director of the Employers Council on Flexible Compensation located in Washington, D.C. "The appropriate amount was $2 at the time that the fee was approved in the Affordable Care Act. That amount increases annually in line with increases in the projected per capita amount of national health spending."
Calculating PCORI Fees
The IRS gives self-insured employers choices for determining the average number of plan enrollees. This is referred to as "covered lives" by the IRS, including spouses, employees, and dependents covered under the health insurance plan. As per the IRS, plan sponsors can employ one of the following methods to determine the number of lives covered under the plan:
The method of actual counting. Plan sponsors add the total of lives covered for every day of the plan year, then divide the total number of days within the plan year.
Snapshot technique. Sponsors add the total number of lives covered on a single day in each quarter in the plan year.
Snapshot factor method. Similar to the method of snapshots, the number of lives covered in any particular day could be determined by calculating the number of lives that were covered on the day or by treating those who have self-only coverage as a single life and those with coverage other than self-only coverage are regarded as 2.35 lives.
Formula 5500. Plan sponsors use a formula to include the number of participants listed on Form 5500 for this plan year.
The IRS published an illustration of the PCORI fee's application to various types of health insurance.
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