Plan sponsors intending to use the Form 5500 method for counting covered lives for the PCORI fee, take note!
If you have a self-insured health plan subject to the PCORI fee with a calendar year plan year and intend to use the Form 5500 method to count covered lives, you cannot utilize the 2 ½ month extension!!! You must file your 2012 Form 5500 by July 31, 2013.
We first discussed the Comparative Effectiveness Research Fee also known as the Patient Centered Outcomes Research Institute (PCORI) fee in ErisaALERT 2012-09. Final Regulations were issued in December 2012 and additional guidance has been issued in recent weeks. In this ErisaALERT, we will summarize the rules and recent guidance.
Background
The Affordable Care Act (ACA) added:
• IRC §4375 relating to the PCORI fee for a specified health insurance policy
• IRC §4376 relating to an applicable self-insured health plans, and
• IRC §4377 containing special rules with respect to the fees.
The issuer of a specified health insurance policy is responsible for paying the fee for the insured policy and the plan sponsor is responsible for the fee in the case of an applicable self-insured health plan. This ALERT will focus on the plan sponsor’s responsibility.
Generally, an applicable self-insured health plan is a plan that provides accident and health insurance if any portion of the coverage is provided other than through an insurance policy and the plan is established or maintained for the benefit of employees or former employees.
An applicable self-insured health plan does not include:
• An EAP, disease management program or wellness program that does not provide significant (significant is not defined) benefits in the nature of medical care or treatment.
• A plan designed specifically to cover employees working outside the United States
• An HRA if it is offered with another applicable self-insured plan and both plans have the same plan sponsor and the same plan year.
• Excepted benefits e.g., stand alone vision and dental, certain health care FSAs
Practically Speaking -You are subject to the PCORI fee if you offer a self-insured medical plan, an HRA. Most health care FSAs are considered excepted benefits.
Effective date
The fee is imposed for each plan year ending on or after October 1, 2012 and before October 1, 2019. For example, the fee is imposed for the 2012 plan year in the case of a calendar year plan.
For plans with non-calendar years, the fee is imposed for plan years ending on or after October 1, 2012, e.g. November 1, 2011 through October 31, 2012; December 1, 2011 through November 30, 2012 and each subsequent plan year.
A plan with a July 1 through June 30 plan year would first be subject to the fee for July 1, 2012 through June 30, 2013.
Amount of the fee
The fee is $1 times the average number of covered lives for plan years ending on or after October 1, 2012 and before October 1, 2013 (e.g., the 2012 calendar year plan) and $2 times the average number of covered lives for plan years ending on or after October 1, 2013 and before October 1, 2014. The fee will be adjusted for plan years beginning on or after October 1, 2014.
Due date for paying the fee
The PCORI fee must be reported and paid no later than July 31 of the year following the last day of the plan year; i.e., July 31, 2013 for calendar year plans as well as plan years ending any time on or after October 1, 2012 through December 31, 2012.
July 31, 2014 is first payment due date for a plan year ending after December 31, 2012, e.g., a July 1, 2012 through June 30, 2013 plan year would submit their first PCORI fee by July 31, 2014.
The fee is paid via Form 720. The IRS has a Questions and Answers page on its website as well as a chart which presents the application of the PCORI fee to common benefit arrangements.
The fee is a deductible business expense according to IRS Memorandum AM2013-02.
Calculating the fee
The regulations provide three methods for calculating the average number of covered lives:
• The actual count method
• The snapshot count method and the snapshot factor method
• The Form 5500 method
Plan sponsors must use the same method for the entire plan year but can change the method from plan year to plan year.
There is a special rule for plan years that began before July 11, 2012 and ended after October 1, 2012 (e.g., the 2012 calendar year) which allows any reasonable method to determine the average number of lives covered under the plan.
The actual count method calculates the sum of lives covered for each day of the plan year and divides by number of days in the plan year.
The snapshot method adds the total number of lives covered on one date in each quarter or an equal number of dates in each quarter and divides by the total number of dates on which a count was made. Each date for the second, third and fourth quarter must be within three days of the date used for the first quarter. For example, an employer could January 7, 2013 as the date for the first quarter, April 4, 2013 for the second quarter, July 10, 2013 for the third quarter and October 9, 2013 for the fourth quarter. The 30th and 31st day of the month are considered the last day of the month.
For purposes of the snapshot method the number of lives covered on a date may be determined as equal to either the sum of the actual number of lives covered on the dates (the snapshot count method) or the sum of (1) the number of participants with self-only coverage, plus (2) the product of the number of participants with coverage other than self-only on the date times 2.35 (the snapshot factor method)
The Form 5500 method is based on a formula that includes the number of participants reported on the Form 5500 for the applicable self-insured health plan for the plan year. The Form 5500 method may be used only if the Form 5500 is filed no later than the due date for the PCORI fee. Calendar year plans must file their Form 5500 without extension to utilize the Form 5500 rule. However, a July 1 through June 30 plan year could file an extension, e.g., the Form 5500 for a July 1, 2012 through June 30, 2013 is due January 31, 2014 or April 15, 2014 with extension. The extended due date of April 15, 2014 is before the PCORI due date of July 31, 2014 and therefore the Form 5500 method can be utilized for the payment due July 31, 2014. How we can help with form 5500
For a plan that provides self-only coverage, the average number of lives is the sum of the total participants at the beginning of the plan year and the end of the plan year divided by two.
For a plan that provides coverage that is not limited to self-only coverage, the average number of lives is the sum of the participants at the beginning of the plan year and at the end of the plan year.
Practically speaking – the following discussion assumes that the health care FSA meets the requirements for an excepted benefit.
If a plan sponsor offers a medical plan that is partly insured and partly self insured, the insurance company pays the PCORI fee for the insured portion and the plan sponsor pays the fee for the self-insured portion.
If a plan sponsor offers two self-insured medical plans with the same plan year, the plans can be aggregated for purposes of calculating the PCORI fee, e.g., self-insured medical and self-insured prescription.
If a plan sponsor offers a completely insured medical plan with an HRA, the insurance company pays the PCORI fee for the insured medical plan and the plan sponsor pays the fee for the HRA. In this case, the employer need only count the participant and not include spouses or dependents for purposes of calculating the PCORI fee for the HRA.
An HRA is not subject to a separate fee if the plan sponsor also maintains a self-insured health plan with the same plan year. The plan sponsor is permitted to treat the HRA and self-insured plan as a single plan and pay the PCORI fee once with respect to each covered life covered under the HRA and other self-insured plan.
Next steps:
• Check on the status of your Form 5500 if you are a calendar year plan.
• Make sure you maintain back up for your covered lives calculation
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Disclaimer: This material is for the sole purpose of providing general information and does not under any circumstances constitute legal advice and should not be used as a substitute for legal advice. You should seek the advice of counsel when applying the requirements to your plan. For more information on this ErisaALERT contact us by phone at 610-524-5351 and ask for Mary Andersen,) or 215-508-5629 and ask for Theresa Borzelli, Esq. (SFE&G)
