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Self-Insured Health Plans and PCORI Fees

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Plan sponsors of self-insured health plans are required to pay a fee to fund the Patient-Centered Outcomes Research Institute. These fees are referred to as “PCORI fees.” Issuers of health insurance policies are also required to pay PCORI fees with respect to insured health plans. Since the plan sponsor is not required to pay PCORI fees with respect to insured plans (although issuers are likely to pass the fee through to plan sponsors by increasing premiums), this article does not address an issuer’s obligation to pay PCORI fees. This article discusses PCORI fees as they apply to self-insured health plans. For a calendar-year plan, the first payment of PCORI fees is due by July 31, 2013.

What plans are subject to the PCORI fees?

Self-insured health plans are subject to the PCORI fees. This includes the following self-insured health plans:

  • major medical plans;
  • prescription drug plans;
  • dental and vision plans that are not excepted benefits;
  • HRAs and health FSAs that are not excepted benefits;
  • retiree-only plans;
  • EAPs, wellness programs, and disease management programs that provide “significant” medical benefits;
  • governmental plans (including plans sponsored by Indian tribal governments); and
  • church plans.

The following self-insured plans are not subject to the PCORI fees:

  • A plan that provides HIPAA-excepted benefits, such as certain limited-scope dental and vision plans, health FSAs that satisfy certain requirements, and certain supplemental coverage (but not including retiree-only plans);
  • An EAP, disease management program, or wellness program that does not provide significant medical benefits;
  • An exempt governmental program (including Medicare, Medicaid, CHIP, or federally established programs providing coverage to members of the military or members of certain Indian tribes); and
  • A plan covering primarily employees working and residing outside the United States.

Who is responsible to pay the PCORI fees?

The plan sponsor of a self-insured health plan is responsible for the fee. In general, the plan sponsor is: (1) the employer, for a single employer plan, (2) the employee organization, for a plan maintained by an employee organization, (3) the joint board of trustees, for a multiemployer plan, (4) the committee, for a MEWA, or (5) the trustee, for a plan mentioned by a VEBA (other than situations in which the VEBA serves merely as a funding vehicle for a plan that is established by an employer).

May plan sponsors use plan assets to pay the PCORI fees?

Plan sponsors generally may not use plan assets to pay the PCORI fees because the fee is imposed on the plan sponsor, not the plan. Using plan assets to pay the fee would be a prohibited transaction. But the DOL has indicated that in certain situations, a plan sponsor may use plan assets to pay the PCORI fee. For example, the board of trustees of a multiemployer plan (which has no source of funding other than plan assets) may pay the PCORI fees from plan assets unless the plan document specifies a source of payment other than plan assets. Also, in the case of a VEBA that provides retiree-only health benefits for which the sponsor is a board of trustees that exists solely for the purpose of sponsoring and administering the plan and has no source of funding independent of plan assets, then the board of trustees may use plan assets to pay the PCORI fee. If a plan is sponsored by a group or association of employers, however, the plan sponsor cannot use plan assets to pay the PCORI fees even if the plan is funded by a VEBA.

How much are the PCORI fees?

The PCORI fee for each plan year is equal to the average number of covered lives for the plan year multiplied by a dollar amount. For the first plan year (i.e., plan years ending on or after October 1, 2012, and before October 1, 2013), the PCORI fee is $1 per covered life. For the second plan year (i.e., plan years ending on or after October 1, 2013, and before October 1, 2014), the PCORI fee is $2 per covered life. For plan years ending on or after October 1, 2014, the PCORI fee will increase.

Who are covered lives?

The PCORI fee is based on the average number of covered lives. This includes employees, retirees, spouses, domestic partners, dependents, and anyone receiving continuation coverage. If a plan sponsor maintains multiple plans that cover the same individuals, the general rule is that the plan sponsor will count the same individuals multiple times. For example, if an employee participates in a self-insured major medical plan and a health FSA that is not an excepted benefit, the plan sponsor will count the employee as a covered life for the major medical plan and again as a covered life for the health FSA. There are some exceptions to these rules, however.

Covered Lives Under Multiple Self-Insured Plans. If the same plan sponsor maintains multiple self-insured plans with the same plan year, the plan sponsor can treat the arrangement as a single plan for purposes of calculating the PCORI fee. By treating the arrangement as a single plan, the plan sponsor will treat the same life covered under each arrangement as one covered life, not multiple covered lives. This rule does not apply with respect to any insured plans (and thus, a self-insured plan cannot be combined with an insured plan to be treated as a single plan).

Plan Providing Insured and Self-Insured Options. If the plan sponsor maintains a self-insured health plan that includes both fully insured and self-insured options, for purposes of calculating the PCORI fee, the plan sponsor can disregard the lives covered solely by the fully insured option and count only the lives covered under the self-insured option.

Covered Lives Under Nonexcepted HRAs and Health FSAs. If a plan sponsor does not maintain a self-insured health plan other than a health FSA or HRA, the plan sponsor of the nonexcepted HRA or health FSA can count only participants as covered lives and can ignore spouses and dependents. If the plan sponsor maintains another self-insured health plan that has the same plan year (and therefore the self-insured plans are treated as a single plan for PCORI fee purposes), this rule (which allows the sponsor to count only participants in the health FSA or HRA as covered lives) applies only to participants who do not participate in the other self-insured plan.

How are covered lives counted?

Plan sponsors of self-insured plans may use one of three methods to determine the average number of covered lives under each plan. The plan sponsor must use the same method consistently for the duration of the plan year (but may use a different method in subsequent plan years). In addition to the three methods, for the first year (i.e., for a plan year beginning before July 11, 2012, and ending on or after October 1, 2012), the plan sponsor may determine the average number of covered lives using any reasonable method.

  • Actual Count Method. To calculate average covered lives under this method, add the total lives covered for each day of the plan year and divide that total by the number of days in the plan year.
  • Snapshot Method. To calculate average covered lives under this method, add the total lives covered on a date during the first, second, or third month of each quarter of the plan year (or more dates in each quarter if an equal number of dates is used in each quarter), and then divide that total by the number of days on which a count was made. Each date used in the second, third, and fourth quarters must be within three days of the corresponding date chosen in the first quarter. For example, if a plan sponsor chooses January 7 as the counting date in the first quarter, the employer may use any date from April 4-10 as the counting date for the second quarter. There are two methods within the snapshot method to count the number of covered lives.
    • Snapshot Count Method. Under this method, count each individual with coverage on the designated date.
    • Snapshot Factor Method. Under this method, add the number of participants with other than self-only coverage on the designated date and multiply that number by 2.35. Then add that number to the number of participants with self-only coverage on the designated date.
  • Form 5500 Method. If the plan offers only self-only coverage, add the total number of participants covered at the beginning and the end of the plan year, as reported on the Form 5500 or Form 5500-SF, and divide that number by 2. If the plan offers both self-only coverage and other coverage (e.g., family coverage), add the total number of participants covered at the beginning and the end of the plan year (but do not divide by 2). Note that a plan sponsor may use this method only if the Form 5500 is filed no later than July 31 of the calendar year following the last day of the applicable plan year. (Thus, if a plan obtains an extension for the Form 5500 beyond July 31, the Form 5500 method is not available for that year.)

What is the effective date for PCORI fees?

The PCORI fees apply to plan years ending on or after October 1, 2012, and before October 1, 2019 (the fees apply for seven plan years). Thus, for calendar-year plans, the fees apply to the 2012 through 2018 plan years.

The PCORI fee is an annual payment due by July 31 of the calendar year immediately following the last day of the applicable plan year. PCORI fees will be reported on IRS Form 720. The first PCORI fee for a calendar-year plan is due by July 31, 2013.

Please contact a member of the Employee Benefits Team if you have any questions about PCORI fees.