Affordable Care Act-related fee due July 31 – Should I worry?

Updated July 3, 2013: The Obama Administration announced a postponement of the effective date for the Patient Protection and Affordable Care Act (ACA) "employer mandate" rules until 2015. Under that provision, companies with 50 or more "full-time equivalent" workers face a fine of as much as $3,000 per employee if they don’t offer affordable insurance to their full-time employees and their dependents. Please look for future communications from us on the formal transitional guidance concerning this postponement, which is expected within the next week. In the meantime, while the effective date for the employer pay-or-play provisions of the ACA have been postponed for one year, the due date for reporting and paying the Patient-Centered Outcomes Research Institute (PCORI) fee discussed below remains July 31, 2013, for calendar year 2012 plans. The following alert discusses the PCORI fee in greater detail. Please feel free to contact your Baker Tilly professional for assistance with the preparation and submission of the Form 720.

Affordable Care Act-related fee due July 31

As part of the Patient Protection and Affordable Care Act (ACA or Affordable Care Act), employers and plan sponsors are required to pay a new annual fee, due on or before July 31, 2013. The following is a quick summary of the fee and its payment requirements.

What is it?

The fee is to fund the nonprofit Patient-Centered Outcomes Research Institute (PCORI), which was established to research risks and benefits of various medical procedures and drugs and to review ways to diagnose, treat, and prevent illness. The fee, which is filed on a Form 720, is effective for calendar years ending after Sept. 30, 2012, and before Sept. 30, 2019.

Who is affected?

Issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans are required to pay the fee. "Applicable" self-insured health plans are generally any plan providing accident and health insurance coverage, other than through insurance, maintained by employers or employee organizations on behalf of their employees or members. This includes accident and health insurance provided by Voluntary Employee’s Beneficiary Associations (VEBAs), Multiple Employer Welfare Arrangements (MEWAs), certain nonprofit associations, and rural electric cooperatives. And, although retiree-only plans are exempt from many PPACA requirements, they are subject to the PCORI fee. Finally, self-insured governmental plans providing accident and health coverage to governmental employees and former employees are also subject to reporting and paying the PCORI fee, including state and local plans and the Federal Employee Health Insurance Plan.

Who is exempt?

Only certain governmental plans are excluded from reporting and paying a PCORI fee: Medicare, Medicaid, CHIP, and any federal program providing medical care other than through insurance policies to members of the armed forces, veterans, or members of Indian tribes.

Who is responsible for paying it?

  • For employers or plan sponsors with self-insured plans, the plan sponsor is responsible for filing and paying. If an employer offers multiple self-insured plans, they pay only one PCORI fee per covered life, not per self-insured plan.
  • For employers and plan sponsors with only fully insured plans, the health insurer files the forms, and fees will be built into annual premiums. In these situations, the employer will not be responsible for paying the fee or filing the requisite forms. It is unclear at this time whether the health insurer will separately bill the employer for the fee or wrap the cost into the annual premium bill.

How much is it?

The fee is equal to the average number of covered lives for the policy year multiplied by the applicable dollar amount and is deductible as an "ordinary and necessary business expense" under Code section 162(a).

  • For policy years ending on or after Oct. 1, 2012, and before Oct. 1, 2013, the applicable dollar amount is $1
  • For policy years ending on or after Oct. 1, 2013, and before Oct. 1, 2014, the applicable dollar amount is $2

For policy years ending in any fiscal year beginning on or after Oct. 1, 2014, the applicable dollar amount is the prior fiscal year’s dollar amount plus an adjustment for medical inflation. The PCORI fee is assessed on the average number of lives covered by an applicable self-insured plan during the plan year. This includes not only the participant (i.e., the employee or member) but the participant’s spouse and dependents covered by the plan. The final regulations make it clear that COBRA-qualified beneficiaries and others with continuation coverage and individuals with retiree coverage must also be counted.

A plan sponsor of a self-insured plan has three different methodologies for determining the number of covered lives: actual count, snapshot, and Form 5500. For calendar 2012 plans, any of these methods can be used.

When is it due?

While the PCORI fee is due July 31, there are still open questions, including:

  • Is there a penalty if I don’t pay by July 31 or underestimate the number of covered lives?
  • Will I receive a refund if I overestimate the number of covered lives?

Please contact your Baker Tilly tax advisor to discuss how the PCORI fee impacts you and your business.