Under the Affordable Care Act, medical plans are required to pay a fee to the Patient-Centered Outcomes Research Institute (PCORI). This non-profit organization evaluates various aspects of medical treatments and patient outcomes. Whether this research improves patient well being is one thing; that PCORI fees impact plan sponsors’ bottom lines is quite another.
PCORI fees were initially imposed in 2012 and will continue until 2019 with the 2015 payment due on July 31, 2016. The fee is based on “covered lives.” In 2015, the fee is $2.08 per covered life. Bear in mind the number of “covered lives” is higher than the number of employees, because a “covered life” includes every person covered by a plan, including employees and dependents and any former employees and dependents covered under COBRA.
If your company is fully insured, you don’t pay the fee directly. The carrier issuing your medical benefits pays the PCORI fee. However, employers who provide certain HRAs may be subject to the additional tax as well. Stand-alone health reimbursement accounts (HRAs) are considered self-funded plans, and employers who offer this type of HRA must pay PCORI fees. Generally speaking, these are HRAs that are not integrated with major medical coverage. The regulations are tricky, so it’s important to review the plan with your advisor to see if there are associated fees.
Employers who are self-funded are also subject to both the PCORI fees and reinsurance fees. These employers have been paying the fees since 2012, but for employers now considering self-funding, these costs must be factored into the calculation. Creative Benefits is often contacted by employers that are fully insured but considering a switch to self-funding. These are frequently mid-level employers frustrated by rising medical insurance costs that want to control their expenses while still protecting their employees.
It is important to review this step with your advisor, both to insure compliance and to calculate costs accurately. Employers must have an accurate picture of the real costs. For example, a “catch” with these fees is that they may not be included as plan costs but rather as a business expenses. This distinction has tax and compliance implications.
Before making big decisions like whether or not to self-fund health coverage, it is critical to reach out to our consultants at Creative Benefits who look at situations like this every day. We help employers balance responsibilities to their workforce with their bottom line and to transition successfully. As always, feel free to contact us at (866) 306-0200 for help calculating or filing PCORI fees or with questions about any aspect of your benefits plan.
About the author: Ann Duke, Esq. is General Counsel with Creative Benefits, Inc. She provides consultative services to employers and their employees. She has an extensive background as both outside and in-house counsel in guiding companies through the understanding and implementation of complex regulatory system requirements. Ann currently concentrates on employment-related compliance, including ACA, ERISA, and Federal and State workplace requirements.