Dentists Should be Aware of a Potential New Healthcare Fee Due July 31, 2013

Our friends at Group Benefit Services (GBS) have alerted us to a new fee generated through the new healthcare act. For more information, contact Kelly Ann Dixon-Nachodsky and/or your CPA.

As part of the Healthcare Affordability Act, sponsors of insurance plans are required to pay a fee each year for the next couple of years for each covered participant.  This is known as the “Patient-Centered Outcomes Research Fee” aka PCORI fee. For employers that offer insurance through a traditional insurance company, the insurance company pays the fee so the employer does not need to do anything.

For employers that offer an HRA (Health Reimbursement Account) plan as a compliment to their high deductible traditional insurance plan , the employer must also pay the fee because the HRA is also treated as an insurance plan.

The Internal Revenue Service (IRS) Releases Revised IRS Form 720 for Reporting PCORI Information

The IRS has released the revised Form 720 to the public and the form is available on the IRS website.

Form 720 now includes a place for the employer to report the number of covered lives. The new section of the form is on the second page and is IRS No. 133 at the very beginning of Part II. The section is labeled Patient-Centered Outcomes Research Fee.

Please click on the links below to access information on the IRS website.

Form 720 as revised April 2013.

Instructions manual for completing Form 720.

For your benefit we are attaching a previous Compliance Alerts and a Chart that were distributed back in May regarding the detail of the PCORI fees.

What Are PCORI (Patient Centered Outcomes Research Institute) Fees and Who Has to Pay?

On December 6, 2012 the IRS issued final regulations regarding the ‘temporary’ annual payment of the PCORI Fees by fully-insured carriers and self-insured plan sponsors of ‘applicable’ health plans, including those covering retirees and COBRA individuals. (Internal Revenue Code Sections 4375 and 4376) Beginning July 2013, the fully insured carriers and most plan sponsors of self-insured health plans will be responsible for paying the annual fees directly to the IRS and are required to report the same on Form 720 as an excise tax.

A few important notes regarding this new Fee:

• ‘Temporary’ as quoted above means this excise tax is to be paid and is applicable for plan years ending on or after October 1, 2012 but stops for plan years ending on or after October 1, 2019.
• ‘Applicable’ health plans as quoted above are defined as a self-insured health plan that provides for accident and health coverage but there are exceptions for excepted benefits.
  • Excepted benefits are defined as separate dental and vision plans, health flexible spending arrangements, hospital indemnity plans, disability income insurance for example.
• HRAs that are integrated with another self-insured health plan are considered part of a single plan and duplication of fees are avoided. However, if the employer sponsors an HRA that is integrated with a fully-insured medical plan, the employer must submit payment for members in the HRA, even though the insurer (carrier) will also be submitting fees for the same individuals enrolled in the associated insured plan.
• Health FSAs are not subject to the PCORI Fee if it meets the requirements of an ‘excepted benefit’ under Code §9832(c). A health FSA is an excepted benefit if:

1. The maximum benefit that is available to a participant in any given year is not more than twice his or her contribution (or, if greater, his or her contribution plus $500) and
2. Major medical coverage is made available that same year.

What are the Fees?

• For Plan Years ending on or after October 1, 2012 and before October 1, 2013 the PCORI fee is $1.00 per covered life.
• For Plan Years ending on or after October 1, 2013 and before October 1, 2014 the PCORI fee is $2.00 per covered life.
• For Plan Years ending on or after October 1, 2014 and before October 1, 2019 the PCORI fee is indexed each Federal fiscal year per covered life (based on the increases of projected per capita amount of National Health Expenditures).
• For Plan Years ending on or after October 1, 2019, there is no fee.

How are Covered Lives Calculated? There are three (j) different ways the covered lives can be counted for the reporting period in order to determine the Fee amount to be paid.

• Actual Count Method – the plan sponsor must add the total number of lives covered (this includes all covered lives, not just enrolled employees) for each day of the plan year and divide that total by the number of days in the plan year.
• Snapshot Method – the plan sponsor must add the total number of lives covered on a specified date (see Snapshot Factor Method and Snapshot Count Method below) during the first, second or third month of each quarter of the plan year and divide the total by the number of dates on which the count was made. Each date used for the second, third or fourth quarter must be within three days of the date used in the first quarter.
  • Snapshot Factor Method – under this method the number of lives covered on a date is equal to the total of:
    • The number of participants with self-only coverage on that date plus
    • The number of participants with coverage other than self-only coverage on that date.
    • The total of the two above is then multiplied by 2.35
  • Snapshot Count Method – under this method the number of lives covered on a date equals the actual number of lives covered on the designated date.
• Form 5500 Method – this method is based on the number of participants reported on the Form 5500. This method can be used only if the Form 5500 is filed no later than the due date of the PCORI Fee (July 31). If an extension is used resulting in Form 5500 being filed later than July 31, this method cannot be used to calculate the average number of covered lives.
  • If the plan sponsor is offering self-only coverage they must add the total participants covered at the beginning and the end of the plan year, as reported on Form 5500, and divide by two.
  • If the plan sponsor is offering more than self-only coverage they must add the total participants covered at the beginning and the end of the plan year as reported on Form 5500 (and do not divide by two).

Transition Rule for the First Year When Calculating the Number of Covered Lives

There is a special transition rule for the first year the fee is required. For a plan year beginning before July 11, 2012 and ending after October 1, 2012, a plan sponsor may determine the average number of lives covered using any reasonable method.

In Summary:

• Fees are paid annually
• Fees are reported and paid by July 31 of the calendar year immediately following the last day of the plan year
• Total due each year is calculated by multiplying the average number of covered lives by the dollar amount for the Federal fiscal year in effect on the last day of the plan year
• Fees are paid using IRS Form 720 – Quarterly Federal Excise Return > Three allowed methods for determining the number of covered lives > The PCORI Fee cannot be paid from Plan Assets
• The PCORI Fee cannot be submitted by a third party on a plan sponsor’s behalf > The PCORI Fee is not tax deductible

PCORI Fees and Reporting Are Due Based on Plan Year

Plan years that end between October 1, 2012 and December 31, 2012	Initial reporting and payment of the PCORI fees must be made by July 31, 2013
Plan years that end January 1, 2013 through December 31, 2013	Report and pay PCORI fees by July 31, 2014

Important Notes Regarding the Fees

1. Final regulations confirm that third parties cannot report or remit the fees on behalf of the plan sponsors.
2. Fully Insured carriers are responsible for paying the PCORI fees and reporting for fully insured health plans.
3. Self Insured plan sponsors are responsible for paying the PCORI fees and reporting on IRS Form 720.
4. Plan Sponsors offering an HRA benefit with their Fully Insured health plan are responsible for paying the PCORI fees and reporting on IRS Form 720 for members enrolled (and their dependents) in the HRA.

Examples of deadlines for paying fees and reporting

Plan year started November 1, 2011 and ends October 31, 2012	Reporting and payment due July 31, 2013
Plan year is a Calendar Year starting January 1, 2013 and ends December 31, 2013	Reporting and payment due July 31, 2014
Plan year started February 1, 2012 and ends January 31, 2013	Reporting and payment due July 31, 2014

Applicable Dollar Amounts for Plan Years Ending

Plan year ending on or after October 1, 2012 and before October 1, 2013	Fee is $1.00 per each covered member (employee and dependents)
Plan year ending on or after October 1, 2013 and before October 1, 2014	Fee is $2.00 per each covered member (employee and dependents)
Plan year ending on or after October 1, 2014 and before October 1, 2019	Fee will be an indexed amount determined each Federal fiscal year
Plan year ending on or after October 1, 2019	No fee