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Patient-Centered Outcomes Research Institute Fee

Timeline of Provisions

Patient-Centered Outcomes Research Institute Fee

Summary

The Patient Protection and Affordable Care Act (the Act) imposes a new Patient-Centered Outcomes Research Institute (PCORI) fee, formerly the comparative effectiveness research fee, on plan sponsors and issuers of individual and group policies. The first year of the fee is $1 per covered life per year, the second year the fee adjusts to $2 per covered life and then it's indexed to national health expenditures thereafter until it ends in 2019.

On Dec. 6, 2012, a final rule (77 Fed. Reg. 22691) was published by the Internal Revenue Service that provides direction on calculating the Patient-centered Outcomes Research Institute Fee.

Timing

The fee begins in 2012 and the phases out in 2019.

For policy or plan years ending after Sept. 30, 2012, issuers and employers sponsoring certain group health plans must pay a fee of $1 per covered life per year. The fee adjusts to $2 per covered life for policy or plan years ending Oct. 1, 2013, through Sept. 30, 2014. For policy or plan year ending after Sept. 30, 2014, the dollar amount in effect for such policy or plan year shall be adjusted by the Secretary of Treasury based on the percentage increase in the projected per capita amount of national health expenditures. The fee will not apply to policy or plan years ending after Sept. 30, 2019.For policy or plan year ending after Sept. 30, 2014, the dollar amount in effect for such policy or plan year shall be adjusted by the Secretary of Treasury based on the percentage increase in the projected per capita amount of national health expenditures. The fee will not apply to policy or plan years ending after Sept. 30, 2019.

Purpose of the Fee

The assessed fees are to be contributed to the Patient-Centered Outcomes Research Trust Fund (PDF) that will fund comparative effectiveness research. The research will evaluate and compare health outcomes and the clinical effectiveness, risks, and benefits of two or more medical treatments and/or services.

Who Pays the Fee

Under the IRS final rule, issuers and plan sponsors are responsible for paying the fee, which is treated like an excise tax by the IRS. A federal excise tax return (Form 720) reporting liability for the fee must be filed by July 31 of the calendar year immediately following the last day of the plan year.

As the issuer of specified health insurance policies, UnitedHealthcare is responsible for filing Form 720 and paying the required PCORI fee in the case of fully insured coverage. The nominal PCORI fee will be rolled into the premium. As the plan sponsor, self-funded customers must complete Form 720 and pay the fee directly to the IRS. (Self-funded customers with questions about the filing of excise tax returns should consult with their tax advisor.)

The PCORI Fee and Health FSAs and HRAs

  • Under the PCORI statutory structure, both the fully insured medical policy and the self-funded HRA are subject to the PCORI Fee. As the issuer of specified health insurance policies, UnitedHealthcare is responsible for paying the PCORI Fee in the case of fully insured coverage. As the sponsor of a self-funded HRA, our employer-customer (or other plan sponsor) is responsible for paying the PCORI fee on behalf of the self-funded HRA. This means that the PCORI fee is paid twice in this situation: once by the health insurance issuer and once by the self-funded plan sponsor. This issue has been referred to as the "double counting issue." Sponsors of self-funded HRAs (that also have a fully insured medical policy, but no other self-funded medical coverage) count only the participant's accounts, so they are treated as a single life (the plan sponsor is not required to count spouses or other dependents). The health insurance issuer will have a different membership count for the fully insured plan than the employer/sponsor who submits the fee for the self-funded HRA.
  • The IRS provides relief from "double counting" when the major medical plan and the HRA are both self-funded and share the same plan year. In that case, both self-funded plans are treated as one self-funded arrangement and the PCORI Fee is only paid once. This rule is known as the "Multiple Self-Insured Arrangements Maintained by the Same Plan Sponsor" rule. It applies anytime a plan sponsor has more than one self-funded plan with the same plan year. Relief under this rule is also available to self-funded plan sponsors with self-funded pharmacy benefit plans or other plans subject to PCORI.
  • If a plan sponsor only maintains an FSA or HRA, and does not offer other self-funded medical coverage, then the plan sponsor may treat each participant's account as covering a single life. (The plan sponsor is not required to count spouses or other dependents.)

Calculating the Fee

The fee is equal to the average number of covered lives for the policy year times the applicable dollar amount.

  • For policy years ending on or after Oct. 1, 2012, and before Oct. 1, 2013 - the applicable dollar amount is $1.
  • For policy years ending on or after Oct. 1, 2013, and before Oct. 1, 2014 - the applicable dollar amount is $2.
  • For policy years ending in any fiscal year beginning on or after Oct. 1, 2014 - the applicable dollar amount is the prior fiscal year's dollar amount plus an adjustment for medical inflation.

Determining Average Number of Lives

Fully Insured Plans

The IRS proposed four methods for determining the average number of covered lives. Issuers must use the same method consistently for the duration of any year and the same method for all policies subject to the fee. (UnitedHealthcare is responsible for paying the required PCORI fee in the case of fully insured coverage.)

  • Actual Count – Count the total number of covered lives for each day of the policy year and divide by the number of days in a year.
  • Snapshot Method – Count the number of members on a single day (or days if consistent for each quarter) during a quarter and divide the total by the number of dates on which a count was made. The date used for each quarter must be the same (i.e., the first day, the last day)
  • NAIC Member Months Method – The issuer determines the average number of covered lives based on member months reported to the National Association of Insurance Commissioners (NAIC) on the Supplemental Health Care Exhibit for the calendar year. The average number of lives in effect for the calendar year equals member months divided by 12.
  • State Form Method – This method is for issuers that are not required to file the NAIC Exhibit. These issuers may determine the number of covered lives using a form that is filed with the issuer's state of domicile, if the form reports the number of covered lives in the same manner as the NAIC Supplemental Exhibit.

Self-funded Plans

Self-funded plans may determine the average number of covered lives by using any of the following methods. Like fully insured plans, plan sponsors must use the same method consistently for the duration of any year and the same method for all policies subject to the fee.

  • Actual Count – Count the total covered lives for each day of the plan year and divide by the number of days in the plan year.
  • Snapshot dates – Count the total number of covered lives on a single day in a quarter (or more than one day) and divide the total by the number of dates on which a count was made. (The date or dates must be consistent for each quarter.)
    • Snapshot Factor – In the case of self-only coverage, determine the sum of: (1) the number of participants with self-only coverage, and (2) the number of participants with other than self-only coverage multiplied by 2.35.
  • Form 5500 Method – For self-only coverage, determine the average number of participants by combining the total number of participants at the beginning of the plan year with the total number of participants at the end of the plan year as reported on the Form 5500 and divide by 2. In the case of plans with self-only and other coverage, the average number of total lives is the sum of total participants covered at the beginning and the end of the plan year, as reported on the Form 5500.

Special Counting Rule for Multiple Self-funded Plans

Under the final rule, if the plan sponsor of a self-funded plan has more than one self-funded plan (e.g., one for medical, another for pharmacy) it may treat them as a single self-funded plan for purposes of this fee to avoid double counting of the members. This special counting rule only applies to self-funded plans in the proposed rule.

Determining Number of Covered Lives in the First Year

For the first year of the fee, plan years beginning before July 11, 2012, and ending on or after Oct. 1, 2012, a plan sponsor may determine the average number of covered lives using any reasonable method. In the first year, fully insured plans, for example, may report only 25 percent of the number of lives it reported on the NAIC form in 2012.

Special Rule for Health FSAs and HRAs

  • If a plan sponsor only maintains a flexible spending account or a health reimbursement arrangement, then the plan sponsor may treat each participant's account as covering a single life. (The plan sponsor is not required to count spouses or other dependents.)
  • If the FSA/HRA is sponsored by a plan sponsor that also has an applicable self-funded health plan (that is not a FSA or HRA), the two arrangements may be treated as one plan.

Plans or Policies Impacted

The fee applies to certain "specified health insurance" policies and includes medical policies, retiree-only policies, any accident or health insurance policy (including a policy under a group health benefit plan) issued to individuals residing in the United States. This does not include:

  • "Excepted benefits," as defined under HIPAA, such as stand-alone vision or dental plans
  • Employee Assistance Programs (EAP) or wellness programs
  • FSA plans, when they meet the excepted benefits test
  • HRA, when it meets the excepted benefits test
  • Health Savings Accounts
  • Expatriate coverage (those working outside the United States and their spouses and dependents)
  • Stop loss, where the issuer is liable for all losses in excess of a specified amount and where the plan sponsor retains its liability for losses
  • Indemnity reinsurance policies, where the reinsuring company accepts all or part of the risk of loss under the policy and the issuing company retains its liability for covered lives
  • Medicare
  • Medicaid
  • CHIP
  • TRICARE
  • Non-insurance health programs for members (spouses or dependents) of the Armed Forces or veterans
  • Federally recognized Indian Health Services and programs under the Indian Health Care Improvement Act

For More Information

Frequently Asked Questions

Fee Schedule and Responsibility

When does the fee go into effect?

The Patient-centered Outcomes Research fee, formerly the comparative effectiveness fee, of $1 per covered life goes into effect for policy or plan years ending after Sept. 30, 2012 (or beginning Oct. 1, 2011). Example: For plans with a calendar year plan year, the $1 fee begins Jan. 1, 2012. For the plan year beginning Jan. 1, 2013, the fee will be $2 per covered life, and for plan years beginning on or after Jan.1, 2013, the amount of the fee will be adjusted to an amount indexed to national health expenditures. The last year the fee will be in effect for this calendar year plan is the plan year starting Jan. 1, 2018.

How will the fee adjust over time?

In the case of any policy or plan year ending after Sept. 30, 2014, the dollar amount in effect for such policy or plan year shall be adjusted by the Secretary of Treasury based on the percentage increase in the projected per capita amount of national health expenditures, as most recently published by the Secretary before October 1 of each year.

What is the definition of "plan sponsor" for a self-funded plan?

The Act states that the "plan sponsor" responsible for paying this fee is:

  • A plan established or maintained by a single employer: the employer
  • A plan established or maintained by an employee organization: the employee organization
  • A plan established or maintained by 2+ employers or jointly by employers/employee organizations (i.e., a multiemployer plan, a MEWA or VEBA): the association, committee, joint board of trustees or other similar group of representatives of the parties who establish or maintain the plan
  • A plan established or maintained by a cooperative or association: the cooperative or association
How is the fee paid and when is it due?

Issuers and plan sponsors are responsible for paying the fee, which is treated like an excise tax by the IRS. A federal excise tax return (Form 720) reporting liability for the fee must be filed by July 31 of the calendar year immediately following the last day of the plan year.

As the issuer of specified health insurance policies, UnitedHealthcare is responsible for filing Form 720 and paying the required PCORI fee in the case of fully insured coverage. The nominal PCORI fee is rolled into the premium.

As the plan sponsor, self-funded customers must complete Form 720 and pay the fee directly to the IRS.

The IRS has provided the following instructions: File the second quarter 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. Issuers and plan sponsors who are required to pay the fee but are not required to report any other liabilities on a Form 720 will be required to file a Form 720 only once a year. They will not be required to file a Form 720 for the first, third or fourth quarters of the year. Deposits are not required for this fee, so issuers and plans sponsors are not required to pay the fee using EFTPS. The IRS has provided the following instructions for Form 720 on how to fill out the form and calculate the fee. The payment, if paid through the Electronic Federal Tax Payment System (EFTPS), should be applied to the second quarter (in EFTPS, select Q2 for the Quarter under Tax Period on the "Business Tax Payment" page).

Self-funded customers with questions about the filing of excise tax returns should consult with their tax advisor.

What if a member is covered under multiple plans? Does the plan sponsor count them once or for each policy they have?

Under the final rule, self-funded plans may treat multiple plans as a single self-funded plan for purposes of the fee to avoid double counting of the members. Fully insured plans must count the member under each policy, so the same member may be counted more than once.

If UnitedHealthcare administers a fully insured group's major medical plan and a self-funded health reimbursement arrangement (HRA), who pays the PCORI fee?

Under the PCORI statutory structure, both the fully insured medical policy and the self-funded HRA are subject to the PCORI Fee. As the issuer of specified health insurance policies, UnitedHealthcare is responsible for paying the PCORI Fee in the case of fully insured coverage. As the sponsor of a self-funded HRA, the employer-customer (or other plan sponsor) is responsible for paying the PCORI fee on behalf of the self-funded HRA. This means that the PCORI fee is paid twice in this situation: once by the health insurance issuer and once by the self-funded plan sponsor. This issue has been referred to as the "double counting issue."

Sponsors of self-funded HRAs (that also have a fully insured medical policy, but no other self-funded medical coverage) count only the participant's accounts, so they are treated as a single life (the plan sponsor is not required to count spouses or other dependents). The health insurance issuer will have a different membership count for the fully insured plan than the employer/sponsor who submits the fee for the self-funded HRA.

The IRS provides relief from "double counting" when the major medical plan and the HRA are both self-funded and share the same plan year. In that case, both self-funded plans are treated as one self-funded arrangement and the PCORI Fee is only paid once. This rule is known as the "Multiple Self-Insured Arrangements Maintained by the Same Plan Sponsor" rule. It applies anytime a plan sponsor has more than one self-funded plan with the same plan year. Relief under this rule is also available to self-funded plan sponsors with self-funded pharmacy benefit plans or other plans subject to PCORI.

Are the PPACA fees tax deductible by self-funded employer groups?

We are unable to provide tax advice for our customers, but can provide the following information as a matter of technical assistance.

The IRS has stated that both the PCORI and the Reinsurance Fee will be tax deductible by employer groups (i.e., sponsors of self-insured group health plans) as ordinary and necessary business expenses, subject to any applicable disallowances or limitations under the Code. In the case of the Reinsurance Fee, this favorable tax treatment will apply whether the contributions are made directly or through a third-party administrator or administrative-services-only contractor. See http://www.irs.gov/uac/Newsroom/ACA-Section-1341-Transitional-Reinsurance-Program-FAQs for more information. See also http://www.irs.gov/pub/irs-utl/AM2013-002.pdf

Do state and local government plans have to pay these fees?

Yes, with exceptions. The law exempts certain governmental programs from the plan fees. The exemptions include:

  • Medicare
  • Medicaid
  • SCHIP
  • Health programs for members (or their spouses or dependents) of the Armed Forces or veterans (other than through insurance)
  • Indian Health Service
Are minimum premium products considered fully insured for purposes of PCORI?

Yes. The $1/$2 per member (covered life) PCORI fee would apply.

Comparative Effectiveness Research

What will the Patient-centered Outcomes Research Institute (PCORI) study?

PCORI released a draft of the National Priorities for Research and Research Agenda (PDF) on Jan. 23, 2012. The agenda reflects PCORI's current thinking about what research areas require more evidence to support better health care decision making. In the draft, PCORI lists its top five national priorities for patient-centered clinical effectiveness research:

  • Comparative assessments of prevention, diagnosis, and treatment options to identify which options work best for different populations;
  • Improving the health care systems, such as improved coordination of care;
  • Communication and dissemination regarding providing information to patients so that they can be better decision-makers;
  • Addressing disparities among patient populations;
  • Accelerating patient-centered and methodological research, including research involving patients and caregivers that is efficient, safe and timely.
Is UnitedHealth Group involved in patient-centered outcomes research?

The Lewin Group Center for Comparative Effectiveness Research was created in 2010 to help support federal efforts to improve patient health outcomes and health care delivery through the development of data-driven and evidence-based findings. The Lewin Center brings together its own health care policy and management consulting expertise and patient-level health data assets from OptumInsight?, a health care information, technology and consulting services company, regarding approaches for implementing comparative effectiveness research and evaluating its impact.