A provision of the Patient Protection and Affordable Care Act (PPACA aka Obamacare or the Affordable Care Act ACA) affects certain sponsors that offer health and welfare plans and must be addressed by July 31, 2013. The purpose of this blog is to explain this provision and bring it to the attention of those plans which it impacts.
What is PCORI and why should it affect an employer?
PPACA created the Patient-Centered Outcomes Research Institute (PCORI), a private, nonprofit corporation, to conduct research and evaluate health outcomes, clinical effectiveness, risks and benefits of medical treatments. (You can learn about PCORI’s activities at http://www.pcori.org/). PPACA requires that PCORI is to be partially funded by a fee collected from health plan providers.
For Fully Insured Plans
The fee will be paid by the health insurance issuer; one would assume that the fee will be passed on to the employers who purchase insurance. However, self-insured plans (which include plans where benefits are paid from general assets of the plan sponsor), the plan sponsor (employer) will be responsible for the fee. The PCORI fee generally will apply to major medical benefits, while many other benefits (including but not limited to dental plans, vision plans and health flexible spending arrangements) are usually excluded.
For Self-Insured Plans
The payment of the PCORI fee will be calculated on IRS Form 720, to be filed by the plan sponsor. The fee applies to plan years ending after Oct. 1, 2012, and is due July 31, 2013. The amount of the PCORI fee applicable for plan years ending after Oct. 1, 2012, and before Oct. 1, 2013, is $1 for each “covered person” (the fee will be increased to $2 the following year, and will continue at an unstated level through 2018). For this purpose, a “covered person” is a term that includes employees, spouses and dependents that are covered under the plan.
The average number of covered persons is determined annually, after the end of the plan year, under one of three methods provided in the regulations. The three allowed methods are:
- The Actual Count method;
- The Snapshot method;
- The Form 5500 (Annual Return/Report of Employee Benefit Plan) method.
The number of ‘covered participants’ could vary widely depending on which methodology is used. Plan sponsors are well advised to analyze the three different methods to see which method produces the most favorable result.
What Should a Plan Sponsor Do About the PCORI Fee?
The plan sponsor of a self-insured plan should determine if the welfare program’s third party administrator will be preparing the IRS Form 720 for this fee. If so, the employer should discuss with the third party administrator what methodology is being used to create the count of “covered persons,” and to determine if there is a more efficient method to be used in the calculation. If the third party administrator is not preparing the IRS Form 720, the plan sponsor should obtain plan participant data from the third party administrator so that it can evaluate which methodology to use for determining the fee. Obviously, the plan sponsor will also need to make sure that the IRS Form 720 is filed and the fee is paid by July 31, 2013.
The plan sponsor of a fully-insured plan should review any correspondence sent to it by the insurer which relates to the PCORI fee that is assessed by the insurer, and if the fee seems excessive, should ask the insurer how the fee was calculated.
We would be pleased to assist you in determining the proper amount of the PCORI fee, as well as other strategies which can help you minimize the impact of PPACA. For more information on this topic, post a comment below or contact our Compensation & Benefits Advisory Services Group at 440-449-6800.