Legal Alert: IRS Releases PCORI Fee For Plan Years Ending Before October 1, 2025
Compliance News
Thursday, December 19 2024
(December 12, 2024) IRS Releases PCORI Fee For Plan Years Ending Before October 1, 2025
The IRS has released Notice 2024-83, which sets the applicable PCORI fee for plan years ending between October 1, 2024, and September 30, 2025, at $3.47 per covered life.
The PCORI fee helps fund the Patient-Centered Outcomes Research Trust, which was established as part of the Affordable Care Act (ACA) to conduct research to evaluate the effectiveness of medical treatments, procedures and strategies that treat, manage, diagnose or prevent illness or injury. Under the ACA, most employer sponsors and insurers were required to pay PCORI fees until 2019 or 2020, as it only applied to plan years ending on or before September 30, 2019. However, the PCORI fee was extended to plan years ending on or before September 30, 2029, as part of the Further Consolidated Appropriations Act, 2020.
The amount of PCORI fees due by employer sponsors and insurers is based on the number of covered lives under each “applicable self-insured health plan” and “specified health insurance policy” (as defined by regulations) and the plan or policy year end date. The fee must be paid on or before July 31 each year. The fees due by July 31, 2025, are for plan years ending in 2024 and are as follows:
For plan years ending between January 1, 2024, and September 30, 2024, the fee is $3.22 per covered life.
For plan years ending between October 1, 2024, and December 31, 2024, the fee is $3.47 per covered life.
Insurance carriers are responsible for calculating and paying the PCORI fee for fully insured plans. The employer is responsible for paying the fee on behalf of a self-insured plan, including a health reimbursement arrangement (HRA). In general, health flexible spending arrangements (FSAs) are not subject to the PCORI fee.
Employers that sponsor self-insured group health plans must report and pay PCORI fees using the second-quarter IRS Form 720, Quarterly Federal Excise Tax Return. The second-quarter form is generally not released by the IRS until the second quarter of the applicable filing year (usually in or around May of the applicable filing year). Therefore, the Form 720 used for the 2024 filing deadline will not likely be available until around May 2025, and employers who sponsor self-insured group health plans subject to the PCORI fee must wait to file until the correct Form 720 is available.
The average number of covered lives for the plan year is generally calculated using the snapshot, snapshot factor, actual count or Form 5500 method. These counting methods will be described in more detail in a future alert as we approach the 2025 filing deadline.
Also note that because the PCORI fee is assessed on the plan sponsor of a self-insured plan, it generally should not be included in the premium equivalent rate that is developed for self-insured plans if the plan includes employee contributions. However, an employer’s payment of PCORI fees is tax-deductible as an ordinary and necessary business expense.
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The IRS has released Notice 2024-83, which sets the applicable PCORI fee for plan years ending between October 1, 2024, and September 30, 2025, at $3.47 per covered life.
The PCORI fee helps fund the Patient-Centered Outcomes Research Trust, which was established as part of the Affordable Care Act (ACA) to conduct research to evaluate the effectiveness of medical treatments, procedures and strategies that treat, manage, diagnose or prevent illness or injury. Under the ACA, most employer sponsors and insurers were required to pay PCORI fees until 2019 or 2020, as it only applied to plan years ending on or before September 30, 2019. However, the PCORI fee was extended to plan years ending on or before September 30, 2029, as part of the Further Consolidated Appropriations Act, 2020.
The amount of PCORI fees due by employer sponsors and insurers is based on the number of covered lives under each “applicable self-insured health plan” and “specified health insurance policy” (as defined by regulations) and the plan or policy year end date. The fee must be paid on or before July 31 each year. The fees due by July 31, 2025, are for plan years ending in 2024 and are as follows:
For plan years ending between January 1, 2024, and September 30, 2024, the fee is $3.22 per covered life.
For plan years ending between October 1, 2024, and December 31, 2024, the fee is $3.47 per covered life.
Insurance carriers are responsible for calculating and paying the PCORI fee for fully insured plans. The employer is responsible for paying the fee on behalf of a self-insured plan, including a health reimbursement arrangement (HRA). In general, health flexible spending arrangements (FSAs) are not subject to the PCORI fee.
Employers that sponsor self-insured group health plans must report and pay PCORI fees using the second-quarter IRS Form 720, Quarterly Federal Excise Tax Return. The second-quarter form is generally not released by the IRS until the second quarter of the applicable filing year (usually in or around May of the applicable filing year). Therefore, the Form 720 used for the 2024 filing deadline will not likely be available until around May 2025, and employers who sponsor self-insured group health plans subject to the PCORI fee must wait to file until the correct Form 720 is available.
The average number of covered lives for the plan year is generally calculated using the snapshot, snapshot factor, actual count or Form 5500 method. These counting methods will be described in more detail in a future alert as we approach the 2025 filing deadline.
Also note that because the PCORI fee is assessed on the plan sponsor of a self-insured plan, it generally should not be included in the premium equivalent rate that is developed for self-insured plans if the plan includes employee contributions. However, an employer’s payment of PCORI fees is tax-deductible as an ordinary and necessary business expense.
To Read More Click Here