The Affordable Care Act imposes annual fees on insurers and on employers that maintain self-insured group health plans to fund the Patient-Centered Outcomes Research Institute (PCORI).[1] And what does the Patient-Centered Outcomes Research Institute do with the fees it collects?  According to their website, it “seeks to empower patients and others with actionable information about their health and healthcare choices.”  They called this writer just the other night.  “Put down the chips and get off the couch,” they said.  

If you have a fully insured plan, guess what?  You can skip this whole section. The insurance company is responsible for paying the fee and filing IRS Form 720. Of course, the PCORI fee and filing costs are passed through to your employer through health insurance premiums. You might save some time but you won’t save money on PCORI fees if your plan is fully insured.

According to IRS Questions and Answers (updated March 4, 2022), for policies and plan years ending after September 30, 2021,[1] and before October 1, 2022, the applicable dollar amount is $2.79. For policies ending after September 30, 2020, and before October 1, 2021, the applicable dollar amount is $2.66[2]

Thanks for the information you say, but my brain can’t process this.  We’re counting employees and dependents in the most recent plan year ending in calendar year 2021, but the periods described in the IRS Q&A run from 2020 to 2022.  It hurts our brains too, we respond.  So ignore the dates we gave you above and just use the chart below:

 Plan Year Ending Dates and Applicable Fees in 2021

You must pay the PCORI fee for each “covered life,” meaning the enrolled employee if they have elected single coverage, and the employee, spouse and dependents if they have family coverage.  For purposes of calculating the PCORI fees in a self-funded plan, employers must use one of the following two methods to determine the average number of covered lives:

• Actual Count Method
• Snapshot Method
• Form 5500 Method. (This method is only available to private employers because public employers do not file Form 5500 – we’re going to skip it here).

C-1. Actual Count Method. The Actual Count Method means just what it says. You count the number of covered lives on every day of the plan year, add them together, and divide by 365.  Even if you have the same 10 employees enrolled in the plan for the entire year, employees with family coverage will have newborns, kids aging out at 26, marriages, divorces, and (hopefully not) deaths.  Your third party administrator should maintain this information, but they won’t use the Actual Count Method.  It’s too much work and few use this approach.

Medical savings accounts such as HRAs, VEBA-HRAs, and FSAs are technically group health plans potentially subject to PCORI fees.  But in most cases, you don’t have to pay PCORI fees for employees enrolled in these accounts.  Health savings accounts (HSAs) are generally[1] not group health plans. They are not subject to PCORI fees.

D-1. When are medical savings accounts exempt from PCORI fee?

D-1(a) FSAs.  Most FSAs are treated as “excepted benefits” which are exempt from PCORI fees altogether.  To qualify as an excepted benefit FSA, the maximum benefit cannot exceed the greater of: (a) two times the employee’s annual health FSA election, or (b) the employee’s annual health FSA election plus $500.[2] If your FSA doesn’t qualify as an excepted benefit FSA, it will still be exempt from PCORI fees if (1) eligibility for the FSA is limited to employees enrolled in your employer’s group health plan[3] and (2) the FSA has the same plan year as the group health plan.

D-1(b) HRAs and VEBA-HRAs.  When employees are enrolled in their employer’s group health plan, their HRAs and VEBA-HRAs are treated as “integrated” with the plan if they have the same plan year.  They are exempt from PCORI fees.

D-2. When are medical savings accounts subject to PCORI fees?

(a) FSAs.  Most FSAs are treated as “excepted benefits” which are exempt from PCORI fees altogether.  To qualify as an excepted benefit FSA, the maximum benefit cannot exceed the greater of: (a) two times the employee’s annual health FSA election, or (b) the employee’s annual health FSA election plus $500.[1] If your FSA doesn’t qualify as an excepted benefit FSA, it will still be exempt from PCORI fees if (1) eligibility for the FSA is limited to employees enrolled in your employer’s group health plan[2] and (2) the FSA has the same plan year as the group health plan.

(a) FSAs.  If you have an FSA that is not an excepted benefit FSA, it will be subject to PCORI fees if it has a different plan year from your employer’s group health plan year.  For example, if your group health plan operates on a plan year from July 1 to June 30, and your FSA operates on the calendar year, you must pay PCORI fees for participants enrolled in your FSA in addition to PCORI fees for the same participants enrolled in your group health plan.  But remember: this rule only applies if your FSA does not qualify as an excepted benefit FSA.  If your FSA is an excepted benefit FSA, you won’t be subject to PCORI fees regardless of the plan year.

(b) HRAs and VEBA-HRAs.

• Retirees. Many public employers offer a retiree VEBA or similar program to help employees pay for medical expenses when their employment terminates.  Employers must pay PCORI fees on these retiree VEBA accounts unless the former employee remains enrolled in the employer’s group health plan, and the group health plan has the same plan year as the VEBA plan.
• Plan Year Issues. To avoid paying double PCORI fees, employers need to make sure that their HRA and VEBA plan years match their group health plan years.   This is something to watch for when employers change plan years for their group health plan program (you should change the HRA or VEBA plan year to match).[1]
• Employees Enrolled in Group Health Plan Coverage through a Spouse. It is permissible to make HRA and VEBA-HRA contributions for employees who are enrolled in group health plan coverage through a spouse.[2] But the IRS requires that you pay a PCORI fee for such employees.

• Retirees. Many public employers offer a retiree VEBA or similar program to help employees pay for medical expenses when their employment terminates.  Employers must pay PCORI fees on these retiree VEBA accounts unless the former employee remains enrolled in the employer’s group health plan, and the group health plan has the same plan year as the VEBA plan. 
• Plan Year Issues. To avoid paying double PCORI fees, employers need to make sure that their HRA and VEBA plan years match their group health plan years.   This is something to watch for when employers change plan years for their group health plan program (you should change the HRA or VEBA plan year to match).[1]
• Employees Enrolled in Group Health Plan Coverage through a Spouse. It is permissible to make HRA and VEBA-HRA contributions for employees who are enrolled in group health plan coverage through a spouse.[2] But the IRS requires that you pay a PCORI fee for such employees. 

Employers occasionally change group health plan years.  The reasons vary, but often it is to accommodate the requests of insurers or third party administrators who wish to spread their workloads related to open enrollments throughout the year.

Because a plan year may not exceed 12 months, a change in plan years typically results in a short plan year.  For example, if an employer wants to change from a July 1 to June 30 fiscal plan year to a calendar year, they adopt a short plan year from July 1 to December 31, and use a January 1 to December 31 plan year thereafter.