PCOR Fees under the ACA Due July 31, 2013 | Practical Law

PCOR Fees under the ACA Due July 31, 2013 | Practical Law

The Internal Revenue Service (IRS) has issued questions and answers addressing the requirement that plan sponsors of self-insured plans and insurers pay fees to finance the Patient-centered Outcomes Research Institute, which was established under the Affordable Care Act (ACA). The first fees under this requirement are due July 31, 2013.

PCOR Fees under the ACA Due July 31, 2013

Practical Law Legal Update 4-535-2387 (Approx. 4 pages)

PCOR Fees under the ACA Due July 31, 2013

by Practical Law Employee Benefits & Executive Compensation
Published on 22 Jul 2013USA (National/Federal)
The Internal Revenue Service (IRS) has issued questions and answers addressing the requirement that plan sponsors of self-insured plans and insurers pay fees to finance the Patient-centered Outcomes Research Institute, which was established under the Affordable Care Act (ACA). The first fees under this requirement are due July 31, 2013.
The IRS has issued Q&As addressing various aspects of the fees for patient-centered outcomes research (PCOR), which were added under the Affordable Care Act (ACA). The Q&As note, among other things, that PCOR fees are due from plan sponsors of self-insured plans and health insurers on July 31, 2013. The fees are intended to finance research by the Patient-centered Outcomes Research Institute, a nonprofit corporation, on the clinical effectiveness of medical treatments, procedures and drugs. For a discussion of the PCOR fee requirement, see Practice Note, Patient-centered Outcomes Research (PCOR) Fees under the ACA.
The PCOR fees apply to certain:
  • Self-insured health plans with plan years ending after September 30, 2012 and before October 1, 2019.
  • Insured plans with policy years ending after September 30, 2012 and before October 1, 2019.

Calculating PCOR Fees

One of the Q&As addresses how to calculate PCOR fees, which are equal to the average number of lives covered during the plan or policy year multiplied by the "applicable dollar amount" for the year. The applicable dollar amount is:
  • $1, for plan and policy years ending after September 30, 2012 and before October 1, 2013.
  • $2, for plan and policy years ending after September 30, 2013 and before October 1, 2014.
For plan and policy years beginning on or after October 1, 2014, and before October 1, 2019, the applicable dollar amount will be adjusted for an inflation index, as determined by the Department of Health and Human Services.

Number of Covered Lives

Under IRS final regulations issued in December 2012:
  • Plan sponsors must use one of three alternative methods (the actual count, snapshot or Form 5500 methods) to determine the average number of lives covered under a self-insured health plan for a plan year.
  • Insurers must use one of four alternative methods (the actual count, snapshot, member months or state form methods) to determine the average number of lives covered under an insurance policy for a policy year.
All individuals covered during the plan or policy year generally must be counted in calculating the average number of lives covered for the year. For example, a self-insured health plan that is subject to PCOR fees must count an employee and the employee's dependent child as two separate covered lives, unless the plan is:
Another Q&A notes that employers providing COBRA coverage (or other coverage to former employees or retirees) must count covered individuals (and their beneficiaries) as "lives covered" for PCOR fee purposes.

Exceptions for Certain Plans, Policies and Benefits

There is a Q&A addressing various exceptions to the PCOR fee requirement. For example, self-insured plans and insurance policies that provide only excepted benefits under Section 9832(c) of the Internal Revenue Code (IRC) (including limited-scope dental and vision benefits and most health FSAs) are not subject to PCOR fees. Also, self-insured plans and policies that are limited to employee assistance programs, disease management programs or wellness programs are not subject to PCOR fees if these programs do not provide significant benefits in the nature of medical care or treatment (see Practice Note, Wellness Programs).
PCOR fees only apply to plans and policies covering individuals residing in the US. The fees do not apply to plans and policies designed specifically to cover employees working and residing outside the US (see Practice Note, Expatriate Coverage under the ACA).

Reporting and Paying PCOR Fees

To report and pay PCOR fees, plan sponsors and insurers must file IRS Form 720 (Quarterly Federal Excise Tax Return), which was updated to reflect the PCOR fee requirement. Form 720 and fee payment is due on July 31 of the year following the last day of the plan or policy year. Plan sponsors and insurers required to pay PCOR fees must:
  • File Form 720 only once a year if they do not need to report any other liabilities using Form 720 (that is, they need not file Form 720 for the other quarters of the year).
  • Use their second quarter Form 720 to report and pay PCOR fees due July 31 if they must also pay other liabilities using Form 720 (that is, only one Form 720 should be filed each quarter).

Practical Impact

Although the government recently announced delay of the Affordable Care Act's (ACA's) employer mandate penalties and information reporting under IRC Sections 6055 and 6056 (see Legal Update, IRS Transition Relief Addresses Delayed Information Reporting and Employer Mandate under the ACA), it does not appear that PCOR fees will be similarly delayed.
Also, according to the DOL, because PCOR fees for single-employer self-insured health plans are imposed on the plan sponsor, rather than the plan, paying PCOR fees generally is not a permitted plan expense under ERISA.