Employers that sponsor self-insured group health plans, including health reimbursement arrangements (HRAs) should keep in mind the upcoming July 31, 2022 deadline for paying fees that fund the Patient-Centered Outcomes Research Institute (PCORI) via Form 720, which was recently updated and released by the IRS. As background, the PCORI was established as part of the Affordable Care Act (ACA) to conduct research to evaluate the effectiveness of medical treatments, procedures and strategies that treat, manage, diagnose or prevent illness or injury. Under the ACA, most employer sponsors and insurers are required to pay PCORI fees until 2029, as it only applies to plan years ending on or before September 30, 2029 (unless extended).
The amount of PCORI fees due by employer sponsors and insurers is based upon the number of covered lives under each “applicable self-insured health plan” and “specified health insurance policy” (as defined by regulations) and the plan or policy year end date. This year, employers will pay the fee for plan years ending in 2021.
The fee is due by July 31, 2022 and varies based on the applicable plan year as follows:
- For plan years that ended between January 1, 2021 and September 30, 2021, the fee is $2.66 per covered life.
- For plan years that ended between October 1, 2021 and December 31, 2021, the fee is $2.79 per covered life.
For example, for a plan year that ran from July 1, 2020 through June 30, 2021 the fee is $2.66 per covered life. The fee for calendar year 2021 plans is $2.79 per covered life. The insurance carrier is responsible for paying the PCORI fee on behalf of a fully insured plan. The employer is responsible for paying the fee on behalf of a self-insured plan, including an HRA. In general, health FSAs are not subject to the PCORI fee.
Employers that sponsor self-insured group health plans must report and pay PCORI fees using the newly released (Rev. June 2022) IRS Form 720, Quarterly Federal Excise Tax Return. Employers indicate on Form 720 and Form 720-V (the payment voucher) that the form and payment are for the 2nd quarter of 2022. If this is an employer’s last PCORI payment and they do not expect to owe excise taxes that are reportable on Form 720 in future quarters (e.g., because the plan is terminating), they may check the “final return” box above Part I of Form 720.
Also note that because the PCORI fee is assessed on the plan sponsor of a self-insured plan, it generally should not be included in the premium equivalent rate that is developed for self-insured plans if the plan includes employee contributions. However, an employer’s payment of PCORI fees is tax deductible as an ordinary and necessary business expense.
Historical Information for Prior Years
- For plan years that ended between October 1, 2020 and December 31, 2020, the fee is $2.66 per covered life and was due by July 31, 2021.
- For plan years that ended between January 1, 2020 and September 30, 2020, the fee is $2.54 per covered life and was due by July 31, 2021.
- For plan years that ended between October 1, 2019 and December 31, 2019, the fee is $2.54 per covered life and was due by July 31, 2020.
- For plan years that ended between January 1, 2019 and September 30, 2019, the fee is $2.45 per covered life and was due by July 31, 2020.
Explanation of Counting Methods for Self-Insured Plans
Plan Sponsors may choose from three methods when determining the average number of lives covered by their plans.
Actual Count method. Plan sponsors may calculate the sum of the lives covered for each day in the plan year and then divide that sum by the number of days in the year.
Snapshot method . Plan sponsors may calculate the sum of the lives covered on one date in each quarter of the year (or an equal number of dates in each quarter) and then divide that number by the number of days on which a count was made. The number of lives covered on any one day may be determined by counting the actual number of lives covered on that day or by treating those with self-only coverage as one life and those with coverage other than self-only as 2.35 lives (the “Snapshot Factor method” ).
Form 5500 method . Sponsors of plans offering self-only coverage may add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, in each case as reported on Form 5500, and divide by 2. For plans that offer more than self-only coverage, sponsors may simply add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, as reported on Form 5500.
Special rules for HRAs . The plan sponsor of an HRA may treat each participant’s HRA as covering a single covered life for counting purposes, and therefore, the plan sponsor is not required to count any spouse, dependent or other beneficiary of the participant. If the plan sponsor maintains another self-insured health plan with the same plan year, participants in the HRA who also participate in the other self-insured health plan only need to be counted once for purposes of determining the fees applicable to the self-insured plans.
On April 29, 2022, the IRS released Revenue Procedure 2022-24 to provide the inflation-adjusted limits for health savings accounts (HSAs) and high deductible health plans (HDHPs) for 2023. The IRS is required to publish these limits by June 1 of each year. These limits include:
- The maximum HSA contribution limit;
- The minimum deductible amount for HDHPs; and
- The maximum out-of-pocket expense limit for HDHPs.
These limits vary based on whether an individual has self-only or family coverage under an HDHP.
Eligible individuals with self-only HDHP coverage will be able to contribute $3,850 to their HSAs in 2023, up from $3,650 in 2022. Eligible individuals with family HDHP coverage will be able to contribute $7,750 to their HSAs in 2023, up from $7,300 in 2022. Individuals age 55 or older may make an additional $1,000 “catch-up” contribution to their HSAs.
The minimum deductible amount for HDHPs increases to $1,500 for self-only coverage and $3,000 for family coverage in 2023 (up from $1,400 for self-only coverage and $2,800 for family coverage in 2022). The HDHP maximum out-of-pocket expense limit increases to $7,500 for self-only coverage and $15,000 for family coverage in 2023 (up from $7,050 for self-only coverage and $14,100 for family coverage in 2022).
The IRS also provided the 2023 contribution limit for excepted benefit health reimbursement arrangements (HRAs). For plan years beginning in 2023, the maximum amount that may be made newly available for an excepted benefit HRA is $1,950.
On April 28, 2022, the Department of Health and Human Services (HHS) filed its final Notice of Benefit and Payment Parameters for 2023. This final rule describes benefit and payment parameters under the Affordable Care Act (ACA) that apply for the 2023 benefit year.
Finalized standards in the rule include:
- The individual mandate’s affordability exemption—The finalized 2023 required contribution percentage is 8.17%.
- Standardized plan options in the Exchanges—Insurers in the federally facilitated Exchanges (FFEs) and state-based Exchanges using the federal platform (SBE-FPs) must offer certain standardized plan options beginning with the 2023 plan year.
HHS also separately announced the updated annual limitations on cost sharing for 2023 on Dec. 28, 2021. The finalized 2023 maximum annual limit on cost sharing is $9,100 for self-only coverage and $18,200 for other-than-self-only coverage.
HHS did not adopt standards for qualified health plans, states and Exchanges that prohibit discrimination based on sexual orientation and gender identity in benefit design and insurer marketing practices. Instead, HHS deferred finalizing these provisions to future rulemaking on ACA Section 1557.
A fact sheet on the rule is also available.