A new fee for employers who sponsor self-insured plans is now due July 31, each year. The fee is paid annually using Form 720, Quarterly Federal Excise Tax Return.
The fee is used to fund Patient-Centered Outcomes Research Institute (PCORI). This new organization is an independent nonprofit, organization authorized by Congress in 2010 to fund comparative clinical effectiveness research and support work that will improve the methods used to conduct such studies.
How much is the PCORI Fee?
The PCORI fee is calculated in this way:
Plan year ending October 2015 through September 2016, multiply the average number of covered lives by $2.17
|Plan Ending Date in month of:||File return no later than:||Applicable rate:|
|Mar 2016||Jul 31, 2017||$2.17|
|Apr 2016||Jul 31, 2017||$2.17|
|May 2016||Jul 31, 2017||$2.17|
|Jun 2016||Jul 31, 2017||$2.17|
|Jul 2016||Jul 31, 2017||$2.17|
|Aug 2016||Jul 31, 2017||$2.17|
|Sep 2016||Jul 31, 2017||$2.17|
Note: You can find the complete IRS PCORI fee table here.
How to Calculate the Number of “Covered Lives” for sponsors of self-insured plans
Sponsors of self-insured plans may use any one of the following three methods to determine the average number of covered lives on which the fee is calculated. It is important to remember that “covered lives” includes not only employees, but also covered spouses, dependents, retirees and COBRA qualified beneficiaries.
Tip: If plan enrollees with other-than-self-only coverage often cover more than two family members, the employer will likely pay a lower PCORI fee by using the snapshot method explained below. Most Third Party Administrators will provide the “covered lives” count using all of the methods below, so be sure to choose the one that yields the lowest PCORI fee amount.
1) Actual Count Method
Add the number of lives covered for each day of the plan year, and divide the total by the number of days in the plan year. E.g., the number of lives on each of 365 days / 365 = the actual count
In practice, if you use this method you probably will be counting the average number of enrollees per month and dividing by 12, since most TPAs report numbers on a monthly basis, not a daily basis.
2) Snapshot method
There are two types of snapshot methods, explained below. The general methodology is the same under each: add the total number of lives covered on one or more dates in each quarter, and divide by the total number of dates on which the count was made.
A plan does not need to pick exactly the same date or dates in each quarter, but each date used for the second, third and fourth quarters must be within three days of the date in that quarter that corresponds to the date used for the first quarter, and all dates used must fall within the same ERISA plan year.
- Snapshot count method: The number of lives equals the actual number of lives covered on the designated date or dates. This includes employees, spouses, other dependents, retirees and COBRA qualified beneficiaries.
- Snapshot factor method: The sum of:
- the number of participants with self-only coverage on the selected date(s), plus
- the number of participants with coverage other than self-only coverage on the same date(s), multiplied by 2.35
3) Form 5500 method
An employer can use this method only if the 5500 is filed no later than the July 31 PCORI fee due date. This means an employer cannot use this method if it files for an extension to file the 5500 later than July 31.
If the plan only provides self-only coverage: add the number of plan participants at the beginning and end of the plan year (as reported on the 5500), and divide by two.
If the plan offers coverage other than self-only: add the number of plan participants reported on the 5500 at the beginning and end of the plan year and do not divide by two.
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