The IRS has issued Notice 2014-56 in which the Patient Centered Outcomes Research (PCOR) fee has been adjusted from the previous dollar amount of $2 per covered life to $2.08 for plan years that end on or after 10/1/14 through 9/30/15.
Under one of the provisions of the Patient Protection and Affordable Care Act of 2010 (PPACA – aka Health Care Reform), health plans are subject to the PCOR fee to partially fund research by the government created nonprofit corporation on patient-centered outcomes - meaning what treatment protocol leads to the most effective outcome for various medical conditions. The intent is that the research will lead to better quality and efficiency of care, thus making care more effective and more affordable.
The PCOR fee applies to an employer’s health plan(s). For coverage provided through a health insurance policy, the health insurer pays the fee. For a self-insured health plan, the plan sponsor (the employer) pays the fee.
The fee applies to plan years ending after September 30, 2012 through plan years ending before October 1, 2019. For example, a calendar year plan is subject to the fee for the 2012 plan year and will pay its last fee for the 2018 plan year.
The fee is $2 per covered life (i.e., enrolled individual) per year for plan years ending between October 1, 2013 and September 30, 2014. For plan years ending between October 1, 2014 and September 30, 2015, the fee will be $2.08 per covered life per year due to adjustment based on the increase in national health care expenditures as published by the Department of Health and Human Services (HHS).
The fee is payable no later than the July 31st of the next calendar year following the end of the plan year. For example, a calendar year plan pays its fee by the following July 31st. A plan year that ends each June pays its fee by July 31 of the following calendar year.
The fee basically applies to health plans that are non-excepted benefits. An employer’s medical plan is a non-excepted benefit and subject to the fee.
Stand-alone dental or vision plans are excepted benefits – so no fee applies.
Most Health Care FSAs are excepted benefits, so no fee applies to an excepted benefit Health Care FSA (excepted benefit Health Care FSAs are those that are subject to the limited COBRA obligation).
Most health reimbursement arrangements (HRAs) are non-excepted benefits, due to being linked with the employer’s medical insurance plan or providing reimbursement not limited to dental or vision expenses only. Therefore, the fee applies to most HRAs, including HRAs that apply only to retirees. The PCOR fee for the HRA is paid by the employer since the HRA is a self-insured plan.
The IRS issued earlier guidance that an employer can use the enrolled employee count as the number of covered lives when calculating the total fee payable at the end of the plan year for a non-excepted Health Care FSA or HRA since the employer may not know the total number of individuals (e.g., number of spouses or dependents) covered by the plan.
The regulation treats the PCOR fee as a tax under Code § 4377(c), as added by PPACA, Pub. L. No. 111-148, § 6301 (2010). As such, the PCOR fee is paid by completing IRS Form 720 to indicate the number of covered lives for the plan year and payment of the correct fee amount, no later than the correct July 31st following the end of the plan year.