With authorization from Congress, the Patient-Centered Outcomes Research Institute conducts millions of dollars worth of research on how to identify the manner in which diseases, disorders, and other health conditions can most effectively and appropriately be prevented, diagnosed, treated, and managed clinically. To fund this research, Congress established the Patient-Centered Outcomes Research Trust Fund (PCORTF) as part of the numerous other health-care related measures passed under the Patient Protection and Affordable Care Act of 2010 (PPACA).
The PCORTF receives its funding from, first, the general fund of the Treasury, and, secondly, a fee assessed on: (1) issuers of specified health insurance policies and (2) plan sponsors of applicable self-insured health plans.
The PCORTF fee will be assessed against “specified health insurance policies” for plan years ending after September 30, 2012 through October 1, 2019. The IRS has announced that it will collect the PCORTF fee for the first time this summer on July 31, 2013. That means insurance providers and certain plan sponsors must prepare for reporting and paying the fee.
What is a “specified health insurance policy?”
The PCORTF fee applies to each “specified health insurance policy” ending after September 30, 2012. A “specified health insurance policy” is defined as any accident or health insurance policy (including a policy under a group health plan) issued with respect to individuals residing in the United States (including possessions).
Certain policies are exempt if substantially all of their coverage consists of excepted benefits such as coverage only for accident, or disability income insurance, liability insurance or coverage issued as a supplement to liability insurance, workers’ compensation, automobile medical payment insurance, credit-only insurance, or coverage for on-site medical clinics.
What is an “applicable self-insured health plan?”
An “applicable self-insured health plan” is any plan for providing accident or health coverage if any portion of the plan’s coverage is provided other than through an insurance policy.
Please see the attached IRS guidance regarding the Application of the Patient-Centered Outcomes Research Trust Fund Fee to Common Types of Health Coverage or Arrangements:
Special Rule for Health Reimbursement Account (HRA) Plans
An HRA is not subject to a separate fee if the HRA is integrated with another applicable self-insured health plan that provides major medical coverage (e.g., a PPO or HDHP). However, if an employer provides a self-insured HRA in combination with an insured group health plan, the self-insured employer plan sponsor will be subject to the fee on the self-insured HRA covered lives; while the insurer of the group insurance policy will be subject to the fee on the group health policy covered lives. This can apply even if the HRA and the insured group health plan are maintained by the same plan sponsor.
Note: If the fee does apply to an HRA, the final regulation provides a special rule permitting the plan sponsor to assume one covered life for each employee with an HRA (and not for dependents).
Who is a “plan sponsor” liable to pay the fees?
A “plan sponsor,” is the employer in the case of a plan established or maintained by an employer.
How much is the fee?
The fee is equal to the average number of lives covered during the policy year or plan year multiplied by the applicable dollar amount for the year. For policy and plan years ending after Sept. 30, 2012, and before Oct. 1, 2013, the applicable dollar amount is $1.
For policy and plan years ending after Sept. 30, 2013, and before Oct.1, 2014, the applicable dollar amount is $2. For policy and plan years beginning on or after Oct. 1, 2014, and before Oct. 1, 2019, the applicable dollar amount is further adjusted to reflect inflation in National Health Expenditures, as determined by the Secretary of Health and Human Services.
How do I report the fee?
Issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans must annually file Form 720, Quarterly Federal Excise Tax Return, to report and pay the fee. Form 720 is due on July 31 of the year following the last day of the policy year or plan year. Payment is due at the time the Form 720 is due.
What is the penalty for not filing and paying the fee?
The penalty is the full amount of the unpaid tax. The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so.
Is the fee deductible?
As additional guidance, please see the attached IRS provided Q&A regarding the Patient-Centered Outcomes Research Trust Fund Fee if you want more information:
If you have any questions regarding the PCORTF, the related fees, and how they might affect your business, please contact us.