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 was $1 per covered life per year, the second year the fee was adjusted to $2 per covered life. Since then the fee has been indexed to national health expenditures. It ends in 2019. For policy years and plan years ending after Sept 30, 2017 and before Oct. 1, 2018, the fee is $2.39 per member per year.

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 began in 2012 and the phases out in 2019.

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 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 720Opens a new window) 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.

Year 1: $1 per member per year – policy or plan years ending after Sept. 30, 2012 and before Oct 1, 2013.

Year 2: $2 per member per year – policy or plan years ending after Sept 30, 2013, and before Oct 1, 2014.

Year 3: $2.08 per member per year – policy or plan year ending after Sept 30, 2014 and before Oct. 1, 2015.

Year 4: $2.17 per member per year – policy years and plan years ending after Sept. 30, 2015 and before Oct. 1, 2016.

Year 5: $2.26 per member per year – policy years and plan years ending after Sept. 30, 2016 and before Oct. 1, 2017.

Year 6: $2.39 per member per year – policy years and plan years ending after Sept 30, 2017 and before Oct. 1, 2018.

The fee will not apply to policy or plan years ending after Sept. 30, 2019.

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.

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