Has your business paid its PCORI fees for the year?
If not, or if you have no idea what the PCORI fee is, you're in the right place. Luckily, you still have a few days to file and pay the fees with the IRS before incurring penalties. We ensure you'll be able to complete the task before the deadline using this guide.
So let's dive into everything you need to know about the PCORI fees due at the end of July 2022.
The Patient-Centered Outcomes Research Institute (PCORI)
PCORI is a nonprofit research organization that strives to empower patients with actionable knowledge about their health and healthcare choices.
It funds comparative clinical effectiveness research (CER), which compares treatments, services, and practices to help patients make better-informed decisions about their health.
Its research also assesses the effectiveness of different medical treatments, procedures, and strategies. The research funded by PCORI focuses on healthcare challenges that American families face daily, such as:
- Cancer
- Diabetes
- Equitable access to care
- Maternal mortality
- Mental health
- Opioid addiction
- And more
What Are PCORI Fees?
Every July, PCORI collects fees from self-funded health insurance plans and some specified health insurance policies. These include Health Reimbursement Arrangements (HRAs) and some employer-funded Flexible Spending Accounts (FSAs).
Employers with these plans are responsible for paying and submitting the accompanying paperwork to the IRS yearly. For employers with fully-insured plans, the insurance carrier is responsible for paying the PCORI fee. If you're unsure about your responsibility to pay this fee, contact your insurer immediately to clear up the confusion.
Initially, PCORI fees were set to expire at the end of 2020. But the government extended them through September 30, 2029. Further, the government can extend the fees again in the future.
The fees help finance PCORI and were first introduced as part of the Affordable Care Act (ACA).
However, PCORI is just one of several ACA fees employers are subject to pay. Importantly, they are separate from the Employer Mandate responsibilities.
PCORI fees are due by July 31, 2022, for applicable employers. However, since the 31st is a Sunday this year, it's best to pay the fees and file the paperwork by Friday the 29th. If you cannot complete the filing until August 1, the IRS will still accept it as on time.
But reporting and paying after August 1, 2022, will result in a penalty.
Fee Rate
Employers can calculate their PCORI fee based on the health plan policies' average number of lives covered. They must account for all individuals enrolled in the self-funded plan, including:
- Spouses
- Dependents
- Retirees
- COBRA recipients
For policy plans that end on or after October 1, 2021, and before October 1, 2022, the rate is $2.79 per covered life. This is an increase from $2.66 for the previous year (2020 to 2021).
How to Calculate the Average Number of Lives
Your business can use one of three IRS-approved methods to calculate the average number of lives covered under a self-funded policy. While you may find a method that works for you, your insurer may have a preferred method.
Additionally, issuers can use the Member Months and State Form Methods to calculate PCORI fees. The IRS does not allow employers to use these methods.
Actual Count Method
Using this method, you count the number of participants covered each day of the plan year. Then divide the total number by the days in the plan year.
Snapshot Method
In the snapshot method, you count the number of lives covered on the same day of each quarter. Then, you divide that number by the number of quarters within the plan year.
Another option is to count the number of participants covered on the first of each month. Then, you divide the number by the number of months within the plan year.
You can also use the "snapshot factor" method. This is when you count each employee with single coverage (1) and count each primary enrollee with family coverage as 2.35.
Form 5500 Method
Using your Annual Return (Form 5500 or Form 5500-SF), you can identify the average number of participants covered in the year.
Those offering self-only plans can add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year and divide by two.
Those with more than self-only coverage can simply add these numbers together.
How to File PCORI Fees
Employers subject to PCORI fees should use Form 720 for the second calendar quarter to report and pay their fees. Employers need to indicate on the Payment Voucher (720-V) at the end of Form 720 that the tax period is the 2nd Quarter, despite the fee being annual.
Failure to do so can lead the IRS's software to generate a late filing notice, which could incur fines. If you have questions about filling out Form 720, the IRS provides details instructions for you to follow.
Additionally, you can ask your tax specialist to help you with the form to ensure you file and pay correctly. Once complete, you can submit the completed form and pay via the Electronic Federal Tax System.
Need Help With Your PCORI Fees?
PCORI fees are just one aspect of ACA fees and reporting. With an understanding of these fees, you can begin to realize your other employer responsibilities under the Affordable Care Act.
However, we know following ACA guidelines can be confusing, so we're here to help. Whether your business needs assistance with certified employee payroll reporting, payroll deductions, or ACA reporting, we've got you covered.
So contact us at Points North today to learn how we can best serve your business.
