Since my early days as a carrier representative, I have had an opportunity to work with several types of Health Insurance contracts. Self-insured plans or “partially” self-insured plans can be a great solution for groups as low as 20 employees. Implementing a plan such as these is sometimes the only way for small and mid-sized groups to minimize overall plan cost. The more modern version of this contract the carriers refer to as “Level Funded”. One of the few negatives is that you have to pay a small tax each year. Specifically, there is what is called the Patient Centered Outcome Results Institute (PCORI) tax, with a deadline of July 31st. Business owners with any version of self-insured Health Insurance policies, or those with Heath Reimbursement Arrangements (HRAs), should be aware that this is an Affordable Care Act (ACA) tax. There are four major tax areas, but the one needs attention right now is the PCORI tax.
What is the PCORI Tax?
The Comparative Effectiveness Research Fee (CERF) funds the PCORI. This institute conducts research that helps determine the effectiveness of various forms of medical services that diagnose, treat or manage diagnosed illnesses and injuries. This tax is paid on Part II of IRS Form 720. The deadline for payment is July 31st of each year for taxes applicable to the prior year. All Employer Sponsored plans that are fully insured do not have to worry about paying the tax themselves because the insurance carrier is responsible. However, all contracts considered “self-insured” must be paid by the employer sponsoring the Group Health Insurance policy. This includes the newly marketed “Level Funded” contracts as well as Health Reimbursement Accounts (HRAs), which technically provide funds to employees that are not part of a pooled insurance contract.
The PCORI fee was only $1 per covered employee per year when it began. (Policy or plan years ending after Sept. 30, 2012, and before Oct. 1, 2013). For 2017 the rates have increased to:
- For policy or plan ending date in the months of January to September: $2.26 per covered employee per year.
- For policy or plan ending date in the months of October to December: $2.39 per covered employee per year.
How the PCORI Tax is Calculated
Employers determine the average number of lives covered for a plan year by adding the total number of lives covered for each day of the plan year and dividing that by the total number of days in the plan year. Assistance in determining the exact number is often available from the underwriting carrier of self-insured contracts or from the Third-Party Administrator who handles an HRA.
The sponsoring Employer however, must do the actual filing – it is not legal for an outside party to do so. The IRS published PCORI details can be found here.
If you need guidance, contact one of our AEPG® Employee Benefits professionals.
Summary of the Four Affordable Care Act (ACA) Taxes
The ACA imposes taxes (fees) to fund premium subsidies for individual health insurance coverage and tax credits for individual American citizens not otherwise covered.
- Health Insurance Industry Fee (HIF) is built into and insurance carrier’s Group Health Insurance Premium and is therefore indirectly paid by Employers. It has increased from 1% of the annual premium in 2014 to 2.5% to 3% in 2018 and future years.
- Reinsurance Fee, which sunsets after final payments were made in 2017, was money used to fund fees needed to offset the financial adverse selection created by the introduction of individuals who were not previously covered.
- Excise (Cadillac) Tax is a 40% tax on “high cost” employer medical plans, the definition of which has still to be set. This tax was originally meant to take place in 2018 but has since been delayed to 2022.
- Comparative Effectiveness Research Fee (CERF) as described above.
Although the fee is small, applicable business owners must file their 2017 PCORI fee by July 31, 2018, to be compliant with ACA. Our Employee Benefit Specialists at AEPG can answer questions you may have about PCORI or any of the ACA taxes.
In addition, take our AEPG® Employee Benefits Assessment to see if you are getting the most out of your employee benefits program. We can help with creative ideas to maximize your benefits while potentially reducing your costs.
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