The Affordable Care Act (ACA) created the Patient-Centered Outcomes Research Institute (PCORI) as a way to help improve clinical effectiveness. The research institute is partially funded by fees charged to health plans, including some Health Reimbursement Arrangements (HRAs) and some Flexible Spending Accounts (FSAs). The fees are payable over a seven year time period and started for the first time last year.

The next round of PCORI fees are due to the IRS by July 31, 2014 and are payable via Form 720 by applicable employers for plan years ending in 2013. Employers are responsible for determining if (and how much) of a payment is due on their own, but here are some helpful tips:

• The fee is paid by the insurance company for any fully insured health plan.
• The fee is paid by the plan sponsor for any self-insured health plan, which includes some HRAs and FSAs. 
• The fee is paid for plan years that ended in the previous calendar year:
  • Plan years ending between 1/1/13 and 9/30/13: Fee is $1 per covered life
  • Plan years ending between 10/1/13 and 12/31/13: Fee is $2 per covered life
• The fee is paid on the average number of covered lives. Here are examples of two allowable ways to calculate the average number of covered lives:
  • Actual Count: Add the total number of covered lives each day of the year and divide that number by 365.
  • Snapshot: Pick one day during each quarter of the plan year. Add the total number of covered lives for each of those days and divide that number by 4.

Special Rules for HRAs

• If the HRA is the only applicable self-insured plan offered by the employer (e.g. it is integrated with a fully insured major medical plan), then each participant on the HRA is treated as being a single covered life. In other words, the employer does not have to include spouses or dependent children in the HRA count. 
• If the employer offers a self-insured major medical plan in addition to the HRA, and both plans have the same plan year, it may treat the two plans as a single plan. In other words, the employer is not subject to fees for both plans. 
• HRAs that only provide benefits for dental/vision are not subject to the fee.

Special Rules for Health FSAs

• FSAs that fail to meet the definition of a "HIPAA excepted benefit" are also subject to PCORI fees. However, because most Health FSAs meet this definition, most will not be subject to the fee.
• FSAs will be considered excepted benefits and exempt from PCORI fees if two requirements are satisfied:

1. Other major medical coverage is made available by reason of employment.
2. The maximum benefit payable to any participant for the year does not exceed two times the salary reduction for the year (or, if greater, the amount of the employee's salary reduction plus $500). In other words, it must satisfy one of these three requirements:

1. The employer does not make any contributions to the FSA.

2. The employer makes no more than a dollar-for-dollar match to the FSA.

3. The employer contributes no more than $500 to the FSA.

The materials contained within this communication are provided for informational purposes only and do not constitute legal or tax advice.